Index


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2013
Commission File No. 1-15983

MERITOR, INC.

(Exact name of registrant as specified in its charter)

 
Indiana
38-3354643
 
 
(State or other jurisdiction of incorporation or
(I.R.S. Employer Identification
 
 
organization)
No.)
 
 
 
 
 
2135 West Maple Road, Troy, Michigan
48084-7186
 
 
(Address of principal executive offices)
(Zip Code)
 

(248) 435-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
X
No
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes
X
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
Large accelerated filer
X
     
Accelerated filer

 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
No
X
 
97,446,316 shares of Common Stock, $1.00 par value, of Meritor, Inc. were outstanding on March 31, 2013 .


INDEX
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

MERITOR, INC.

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
 
(Unaudited)
Sales
$
908

 
$
1,160

 
$
1,799

 
$
2,319

Cost of sales
(813
)
 
(1,026
)
 
(1,621
)
 
(2,079
)
GROSS MARGIN
95

 
134

 
178

 
240

Selling, general and administrative
(65
)
 
(72
)
 
(127
)
 
(137
)
Restructuring costs
(11
)
 
(3
)
 
(17
)
 
(27
)
Other operating expense
(1
)
 
(1
)
 
(2
)
 
(2
)
OPERATING INCOME
18

 
58

 
32

 
74

       Other income, net
—

 
1

 
—

 
5

Equity in earnings of affiliates
10

 
14

 
19

 
29

Interest expense, net
(25
)
 
(23
)
 
(54
)
 
(47
)
INCOME (LOSS) BEFORE INCOME TAXES
3

 
50

 
(3
)
 
61

Provision for income taxes
(7
)
 
(17
)
 
(17
)
 
(37
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
(4
)
 
33

 
(20
)
 
24

LOSS FROM DISCONTINUED OPERATIONS, net of tax
—

 
(9
)
 
(5
)
 
(18
)
NET INCOME (LOSS)
(4
)
 
24

 
(25
)
 
6

Less: Net income attributable to noncontrolling interests
—

 
(4
)
 
—

 
(8
)
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
$
(4
)
 
$
20

 
$
(25
)
 
$
(2
)
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
(4
)
 
$
29

 
$
(20
)
 
$
16

Loss from discontinued operations
—

 
(9
)
 
(5
)
 
(18
)
       Net income (loss)
$
(4
)
 
$
20

 
$
(25
)
 
$
(2
)
BASIC EARNINGS (LOSS) PER SHARE
 
 
 
 
 
 
 
Continuing operations
$
(0.04
)
 
$
0.30

 
$
(0.20
)
 
$
0.17

Discontinued operations
—

 
(0.09
)
 
(0.05
)
 
(0.19
)
       Basic earnings (loss) per share
$
(0.04
)
 
$
0.21

 
$
(0.25
)
 
$
(0.02
)
DILUTED EARNINGS (LOSS) PER SHARE
 
 
 
 
 
 
 
Continuing operations
$
(0.04
)
 
$
0.30

 
$
(0.20
)
 
$
0.17

Discontinued operations
—

 
(0.09
)
 
(0.05
)
 
(0.19
)
       Diluted earnings (loss) per share
$
(0.04
)
 
$
0.21

 
$
(0.25
)
 
$
(0.02
)
 
 
 
 
 
 
 
 
Basic average common shares outstanding
97.2

 
96.3

 
96.9

 
95.4

Diluted average common shares outstanding
97.2

 
97.2

 
96.9

 
97.2



See notes to consolidated financial statements.

3

MERITOR, INC.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
 
(Unaudited)
Net income (loss) attributable to Meritor, Inc.
$
(4
)
 
$
20

 
$
(25
)
 
$
(2
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
3

 
11

 
(2
)
 
9

Pension and other postretirement benefit related adjustments
(2
)
 
2

 
(2
)
 
2

Unrealized gains (losses) on investments:
 
 
 
 
 
 
 
Unrealized loss on investments and foreign exchange contracts
1

 
1

 
—

 
—

Reclassification adjustment for gain on sale of investments
—

 
—

 
—

 
(2
)
Other comprehensive income (loss)
2

 
14

 
(4
)
 
9

Comprehensive income (loss) attributable to Meritor, Inc.
(2
)
 
34

 
(29
)
 
7

Comprehensive income attributable to noncontrolling interest
—

 
5

 
1

 
8

Total comprehensive income (loss)
$
(2
)
 
$
39

 
$
(28
)
 
$
15


See notes to consolidated financial statements.


4

MERITOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)

 
March 31,
2013
 
September 30,
2012
 
(Unaudited)
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
117

 
$
257

Receivables, trade and other, net
555

 
542

Inventories
420

 
438

Other current assets
54

 
61

TOTAL CURRENT ASSETS
1,146

 
1,298

NET PROPERTY
395

 
417

GOODWILL
427

 
433

OTHER ASSETS
369

 
353

TOTAL ASSETS
$
2,337

 
$
2,501

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
CURRENT LIABILITIES:
 
 
 
Short-term debt
$
25

 
$
18

       Accounts payable
616

 
697

Other current liabilities
297

 
313

TOTAL CURRENT LIABILITIES
938

 
1,028

LONG-TERM DEBT
1,030

 
1,042

RETIREMENT BENEFITS
1,056

 
1,075

OTHER LIABILITIES
327

 
338

EQUITY (DEFICIT):
 
 
 
Common stock (March 31, 2013 and September 30, 2012, 97.4 and 96.5 shares issued and outstanding, respectively)
97

 
96

Additional paid-in capital
910

 
901

Accumulated deficit
(1,130
)
 
(1,105
)
Accumulated other comprehensive loss
(919
)
 
(915
)
Total deficit attributable to Meritor, Inc.
(1,042
)
 
(1,023
)
Noncontrolling interests
28

 
41

TOTAL DEFICIT
(1,014
)
 
(982
)
TOTAL LIABILITIES AND DEFICIT
$
2,337

 
$
2,501


See notes to consolidated financial statements.

5

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)

 
Six Months Ended March 31,
 
2013
 
2012
 
(Unaudited)
OPERATING ACTIVITIES
 
 
 
CASH USED FOR OPERATING ACTIVITIES (See Note 10)
$
(109
)
 
$
(46
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(23
)
 
(43
)
Proceeds from sale of property
—

 
18

Other investing activities
—

 
(2
)
Net investing cash flows used for continuing operations
(23
)
 
(27
)
Net investing cash flows provided by discontinued operations
6

 
28

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
(17
)
 
1

FINANCING ACTIVITIES
 
 
 
Borrowings on accounts receivable securitization program, net
—

 
19

Repayment of notes and term loan
(236
)
 
(84
)
Proceeds from debt issuance
225

 
—

Debt issuance costs
(6
)
 
—

Other financing activities
2

 
—

CASH USED FOR FINANCING ACTIVITIES
(15
)
 
(65
)
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
RATES ON CASH AND CASH EQUIVALENTS
1

 
2

CHANGE IN CASH AND CASH EQUIVALENTS
(140
)
 
(108
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
257

 
217

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
117

 
$
109


See notes to consolidated financial statements.

6

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(In millions)
(Unaudited)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total Deficit
Attributable to
Meritor, Inc.
 
Noncontrolling
Interests
 
Total
Beginning balance at September 30, 2012
$
96

 
$
901

 
$
(1,105
)
 
$
(915
)
 
$
(1,023
)
 
$
41

 
$
(982
)
Comprehensive income (loss)
—

 
—

 
(25
)
 
(4
)
 
(29
)
 
1

 
(28
)
Vesting of restricted stock
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

Repurchase of convertible notes
—

 
(2
)
 
—

 
—

 
(2
)
 
—

 
(2
)
Issuance of convertible notes
—

 
9

 
—

 
—

 
9

 
—

 
9

Equity based compensation expense
—

 
3

 
—

 
—

 
3

 
—

 
3

Non-controlling interest dividends
—

 
—

 
—

 
—

 
—

 
(14
)
 
(14
)
Ending Balance at March 31, 2013
$
97

 
$
910

 
$
(1,130
)
 
$
(919
)
 
$
(1,042
)
 
$
28

 
$
(1,014
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at September 30, 2011
$
94

 
$
897

 
$
(1,157
)
 
$
(829
)
 
$
(995
)
 
$
34

 
$
(961
)
Comprehensive income (loss)
—

 
—

 
(2
)
 
9

 
7

 
8

 
15

Issuance of restricted stock
2

 
(2
)
 
—

 
—

 
—

 
—

 
—

Equity based compensation expense
—

 
3

 
—

 
—

 
3

 
—

 
3

Other
—

 
—

 
—

 
—

 
—

 
(2
)
 
(2
)
Ending Balance at March 31, 2012
$
96

 
$
898

 
$
(1,159
)
 
$
(820
)
 
$
(985
)
 
$
40

 
$
(945
)

See notes to consolidated financial statements.

7
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Basis of Presentation
Meritor, Inc., (the "company" or "Meritor"), headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, off-highway, military, bus and coach and other industrial OEMs and certain aftermarkets. The consolidated financial statements are those of the company and its consolidated subsidiaries.
Certain businesses are reported in discontinued operations in the consolidated statement of operations, statement of cash flows and related notes for all periods presented. Additional information regarding discontinued operations is discussed in Note 4.
In the opinion of the company, the unaudited financial statements contain all adjustments, consisting solely of adjustments of a normal, recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2012 . The results of operations for the three and six months ended March 31, 2013 , are not necessarily indicative of the results for the full year.
The company’s fiscal year ends on the Sunday nearest September 30. The second quarter of fiscal years 2013 and 2012 ended on March 31, 2013 and April 1, 2012 , respectively. All year and quarter references relate to the company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, September 30 and March 31 are used consistently throughout this report to represent the fiscal year end and second quarter end, respectively.
The company has evaluated subsequent events through the date that the consolidated financial statements were issued (see Note 23).
2. Earnings per Share
Basic earnings per share is calculated using the weighted average number of shares outstanding during each period. Diluted earnings per share calculation includes the impact of dilutive common stock options, restricted stock, performance share awards and convertible securities, if applicable.
A reconciliation of basic average common shares outstanding to diluted average common shares outstanding is as follows (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Basic average common shares outstanding
97.2

 
96.3

 
96.9

 
95.4

Impact of stock options
—

 
—

 
—

 
—

Impact of restricted shares and share units
—

 
0.9

 
—

 
1.8

Diluted average common shares outstanding
97.2

 
97.2

 
96.9

 
97.2

For the three and six months ended March 31, 2012 , options to purchase 0.7 million shares of common stock were excluded from the computation of diluted earnings per share because their exercise price exceeded the average market price for the period and thus their inclusion would be anti-dilutive. The potential effects of stock options and restricted shares and share units were excluded from the diluted earnings per share calculation for the three and six months ended March 31, 2013 because their inclusion in a net loss period would reduce the net loss per share. Therefore at March 31, 2013 , options to purchase 0.5 million shares of common stock were excluded from the computation of diluted earnings per share. In addition, 0.4 million shares of restricted stock were excluded from the computation of diluted earnings per share for the three and six months ended March 31, 2013 , respectively. The company’s convertible senior unsecured notes are excluded from the computation of diluted earnings per share, as the stock price at the end of the quarter is less than the conversion price.

8
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. New Accounting Standards
Accounting standards implemented during fiscal year 2013
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The company adopted this guidance at the beginning of its first quarter of fiscal year 2013 and has reported Other Comprehensive Income as a separate but consecutive statement.
Accounting standards to be implemented
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. As such, ASU 2013-01 will be effective October 1, 2013 for the company and will be applied prospectively . The company does not believe the adoption will have a significant impact on the company's consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income be presented on the financial statements or in a note to the financial statements. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. As such, ASU 2013-02 will be effective October 1, 2013 for the company and will be applied prospectively. The company does not believe the adoption will have a significant impact on the company's consolidated financial statements.
4. Discontinued Operations
Results of discontinued operations are summarized as follows (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Sales
$
—

 
$
—

 
$
—

 
$
2

 
 
 
 
 
 
 
 
Loss before income taxes
$
—

 
$
(10
)
 
(5
)
 
(19
)
Benefit for income taxes
—

 
1

 
—

 
1

Loss from discontinued operations attributable to Meritor, Inc.
$
—

 
$
(9
)
 
$
(5
)
 
$
(18
)
     Loss from discontinued operations for the six months ended March 31, 2013 was primarily due to environmental remediation costs. Loss from discontinued operations for the three and six months ended March 31, 2012 related to changes in estimates and adjustments related to certain assets and liabilities retained from previously divested businesses and indemnities provided at the time of sale.

9
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Goodwill
As discussed in Note 22, "Business Segment Information," the company reorganized its management reporting structure in the first quarter of fiscal year 2013 resulting in two reportable segments. The company reviews goodwill for impairment annually during the fourth quarter of the fiscal year, or whenever events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The company tests goodwill for impairment at a level of reporting referred to as a reporting unit, which is an operating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. When two or more components of an operating segment have similar economic characteristics, the components are aggregated and deemed a single reporting unit. An operating segment is deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if the segment comprises only a single component.

As a result of the change in reporting segments, the company's reporting units changed. The Commercial Truck and Industrial segment now contains two reporting units. The Aftermarket and Trailer segment remains a single reporting unit. Goodwill was reassigned to the new reporting units using a relative fair value allocation. Giving specific consideration to the changes in reporting units, the company did not observe any factors which caused the company to believe that goodwill is more likely than not impaired.
A summary of the changes in the carrying value of goodwill by reportable segment is presented below (in millions):
 
Commercial Truck & Industrial
 
Aftermarket
& Trailer
 
Commercial Truck
 
Industrial
 
Total
Balance at September 30, 2012
$
—

 
$
171

 
$
153

 
$
109

 
$
433

Segment reorganization
262

 
—

 
(153
)
 
(109
)
 
—

Foreign currency translation
(4
)
 
(2
)
 
—

 
—

 
(6
)
Balance at March 31, 2013
$
258

 
$
169

 
$
—

 
$
—

 
$
427



10
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Restructuring Costs
     At both March 31, 2013 and September 30, 2012 , $18 million and $15 million , respectively, of restructuring reserves primarily related to unpaid employee termination benefits remained in the consolidated balance sheet. The changes in restructuring reserves for the six months ended March 31, 2013 and 2012 are as follows (in millions):
 
Employee
Termination
Benefits
 
Asset
Impairment
 
Plant
Shutdown
& Other
 
Total
Balance at September 30, 2012
$
15

 
$
—

 
$
—

 
$
15

Activity during the period:
 
 
 
 
 
 

Charges to continuing operations
15

 
1

 
1

 
17

Asset write-offs
—

 
(1
)
 
—

 
(1
)
Cash payments – continuing operations
(12
)
 
—

 
—

 
(12
)
Other
—

 
—

 
(1
)
 
(1
)
Total restructuring reserves at March 31, 2013
18

 
—

 
—

 
18

Less: non-current restructuring reserves
(3
)
 
—

 
—

 
(3
)
Restructuring reserves – current, at March 31, 2013
$
15

 
$
—

 
$
—

 
$
15

 
 
 
 
 
 
 
 
Balance at September 30, 2011
$
19

 
$
—

 
$
—

 
$
19

Activity during the period:
 
 
 
 
 
 
 
Charges to continuing operations
6

 
19

 
2

 
27

Charges to discontinued operations (1)
—

 
—

 
1

 
1

Asset write-offs
(1
)
 
(19
)
 
—

 
(20
)
Cash payments – continuing operations
(9
)
 
—

 
(1
)
 
(10
)
Cash payments – discontinued operations
(1
)
 
—

 
(1
)
 
(2
)
Total restructuring reserves at March 31, 2012
14

 
—

 
1

 
15

Less: non-current restructuring reserves
(5
)
 
—

 
—

 
(5
)
Restructuring reserves – current, at March 31, 2012
$
9

 
$
—

 
$
1

 
$
10

(1)  
Charges to discontinued operations are included in loss from discontinued operations in the consolidated statement of operations.
Variable Labor Reductions: The company is executing a global variable labor headcount reduction plan intended to reduce labor and other costs in response to market conditions. As part of this action, the company expects to eliminate 375 hourly and 50 salaried positions and incur approximately $9 million of restructuring costs in the Commercial Truck & Industrial segment. The company has recognized cumulative costs of approximately $8 million , primarily severance benefits, as of March 31, 2013, of which approximately $5 million was recognized in fiscal year 2012 and $3 million was recognized in fiscal year 2013. The remaining restructuring costs for this program are expected to be incurred in fiscal year 2013.
Remanufacturing Consolidation: During the first quarter of fiscal year 2013, the company announced the planned consolidation of its remanufacturing operations in the Aftermarket & Trailer segment resulting in the upcoming closure of one remanufacturing plant in Canada. The closure will result in the elimination of 85 hourly positions including approximately 65 positions which will be transferred to the company's facility in Indiana. The company expects to incur approximately $4 million of restructuring costs in relation to this program related to employee severance and a lease termination. During the six months ended March 31, 2013, the company recorded cumulative restructuring charges of approximately $2 million associated with employee severance charges and lease termination costs.

11
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Segment Reorganization and Asia Pacific Realignment : On November 12, 2012, the company announced a revised management reporting structure resulting in two business segments to drive efficiencies. On January 8, 2013, the company announced restructuring actions related to its business segment rationalization. On March 26, 2013, the company announced plans to restructure its Commercial Truck & Industrial segment in China resulting in the transfer of manufacturing operations from the Wuxi, China facility to the company's off-highway facility in China.

The company currently estimates charges in the range of $20 million to $25 million associated with these restructuring actions, which are expected to be incurred by the end of the fiscal year 2013. Of these charges, $15 million are expected to be for employee severance costs associated with the elimination of 200 salaried positions (including contract employees) and 50 hourly positions, $6 million related to lease terminations, and the remainder associated with other exit costs. The company has recognized cumulative costs of approximately $12 million under these actions. During the six months ended March 31, 2013, the company recorded employee severance charges and other exit costs of approximately $6 million and $3 million in the Commercial Truck & Industrial and Aftermarket & Trailer segments, respectively, as well as approximately $3 million at our corporate locations primarily for employee severance benefits.
Performance Plus: During fiscal year 2007, the company launched a long-term profit improvement and cost reduction initiative called “Performance Plus.” As part of this program, the company identified significant restructuring actions which would eliminate up to 2,800 positions in North America and Europe and consolidate and combine certain global facilities. The company’s continuing operations recognized restructuring costs in its Commercial Truck & Industrial business segment of $24 million in the first six months of fiscal year 2012 related to Performance Plus. These costs include $19 million of non-cash charges, including an impairment charge of $17 million for assets held for sale at December 31, 2011. In connection with the then planned sale of St. Priest, France manufacturing facility to Renault Trucks SAS, the company classified certain assets and associated liabilities as held for sale (collectively the “Disposal Group”) at December 31, 2011. Upon comparing the carrying value of the Disposal Group to its fair value less cost to sell, an impairment was identified. The sale of the Disposal Group was completed on January 2, 2012. In addition, other restructuring charges of approximately $5 million (including $1 million in the second quarter of fiscal year 2012) associated with employee headcount reduction and plant rationalization costs were recognized in connection with the sale of the disposal group.
Cumulative restructuring costs recorded for this program as of March 31, 2012 are $186 million , including $93 million reported in discontinued operations in the consolidated statement of operations. These costs primarily relate to employee severance and related costs of $117 million , asset impairment charges of $41 million and $28 million primarily associated with pension termination benefits. The company’s Commercial Truck & Industrial segment has recognized cumulative restructuring costs associated with Performance Plus of $82 million . Cumulative restructuring costs of $11 million were recognized by corporate locations and the company’s Aftermarket & Trailer segment. All restructuring actions associated with Performance Plus were complete as of September 30, 2012.
7. Other Income, Net
     Other income, net for the six months ended March 31, 2012 included a $3 million non-operating gain related to the sale of the company’s remaining ownership interest in Gabriel India, Ltd during the prior year's first fiscal quarter. The company’s ownership interest in Gabriel India, Ltd was a legacy investment accounted for under the cost method that the company deemed non-core upon the completion of the sale of its light vehicle businesses.
8. Income Taxes
For each interim reporting period, the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year pursuant to FASB Accounting Standards Codification (ASC) Topic 740-270, “Accounting for Income Taxes in Interim Periods.” The rate so determined is used in providing for income taxes on a year-to-date basis. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Income tax expense (benefit) is allocated between continuing operations, discontinued operations and other comprehensive income (OCI). Such allocation is applied by tax jurisdiction, and in periods in which there is a pre-tax loss from continuing operations and pre-tax income in another category, such as discontinued operations or OCI, income tax expense is allocated to the other sources of income, with a related benefit recorded in continuing operations.

12
Index


For the first six months of fiscal years 2013 and 2012 , the company had approximately $52 million , respectively, of net pre-tax losses in tax jurisdictions in which a tax benefit is not recorded. Losses arising from these jurisdictions resulted in increasing the valuation allowance, rather than reducing income tax expense.
9. Accounts Receivable Factoring & Securitization
     Off-balance sheet arrangements 
Swedish Factoring Facility: The company has an arrangement to sell trade receivables due from AB Volvo through one of its European subsidiaries. Under this arrangement, which was renewed on June 19, 2012 and which now terminates on June 28, 2013, the company can sell up to, at any point in time, €150 million of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized €103 million ( $133 million ) and €119 million ( $154 million ) of this accounts receivable factoring facility as of March 31, 2013 and September 30, 2012 , respectively.
U.S. Factoring Facility: The company has an arrangement to sell trade receivables from AB Volvo and its subsidiaries. Under this arrangement, which was renewed on September 28, 2012, and which now terminates on October 29, 2013, the company can sell up to, at any point in time, €65 million ( $83 million ) of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized €40 million ( $51 million ) and €51 million ( $66 million ) of this accounts receivable factoring facility as of March 31, 2013 and September 30, 2012 , respectively.
     The above facilities are backed by 364-day liquidity commitments from Nordea Bank which were renewed through October 2013. The commitments are subject to standard terms and conditions for these types of arrangements. The company believes both facilities will be successfully renewed prior to maturity.
      United Kingdom Factoring Facility: The company entered into an arrangement to sell trade receivables from AB Volvo and its European subsidiaries through one of its United Kingdom subsidiaries. Under this arrangement, which was renewed on January 24, 2013 and now expires in February 2018, the company can sell up to, at any point in time, €25 million of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized €6 million ( $8 million ) and €9 million ( $12 million ) of this accounts receivable factoring facility as of March 31, 2013 and September 30, 2012, respectively. The commitment is subject to standard terms and conditions for these types of arrangements including a sole discretion clause whereby the bank retains the right to not purchase receivables, which has not been invoked since the inception of the program.
     Italy Factoring Facility: The company entered into an arrangement to sell trade receivables from AB Volvo and its European subsidiaries through one of its Italian subsidiaries. Under this arrangement, which expires in June 2017, the company can sell up to, at any point in time, €30 million of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized €9 million ( $11 million ) and €13 million ( $16 million ) of this accounts receivable factoring facility as of March 31, 2013 and September 30, 2012. The commitment is subject to standard terms and conditions for these types of arrangements including a sole discretion clause whereby the bank retains the right to not purchase receivables, which has not been invoked since the inception of the program.
     In addition, several of the company’s subsidiaries, primarily in Europe, factor eligible accounts receivable with financial institutions. Certain receivables are factored without recourse to the company and are excluded from accounts receivable in the consolidated balance sheet. The amount of factored receivables excluded from accounts receivable was $10 million and $7 million at March 31, 2013 and September 30, 2012 , respectively.
     Total costs associated with all of the off-balance sheet arrangements described above were $3 million and $6 million in the six months ended March 31, 2013 and 2012 , respectively, and are included in selling, general and administrative expenses in the consolidated statement of operations.

13
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     On-balance sheet arrangements
The company has a $100 million U.S. accounts receivables securitization facility, which expires on June 18, 2015. This program is provided by PNC Bank, National Association (PNC), as Administrator, Market Street Funding, LLC, and the other Purchasers and Purchaser Agents from time to time (participating lenders), which are party to the agreement. Under this program, the company has the ability to sell an undivided percentage ownership interest in substantially all of its trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. Factoring Facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit issued for the company's U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the consolidated balance sheet. At March 31, 2013, no amounts, including letters of credit, were outstanding under this program. This program contains a financial covenant related to the company's priority-debt-to-EBITDA ratio, which is the same as the corresponding covenant in the company's revolving credit facility as it exists on the date of the agreement and a cross default to the revolving credit facility. At March 31, 2013, the company was in compliance with all covenants under its credit agreement (see Note 17).
10. Operating Cash Flow
The reconciliation of net income (loss) to cash flows used for operating activities is as follows (in millions):
 
Six Months Ended
March 31,
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
(25
)
 
$
6

Less: Loss from discontinued operations, net of tax
(5
)
 
(18
)
Income (loss) from continuing operations
(20
)
 
24

Adjustments to income (loss) from continuing operations to arrive at cash used for operating activities:
 
 
 
Depreciation and amortization
33

 
33

Restructuring costs
17

 
27

Loss on debt extinguishment
5

 
—

Equity in earnings of affiliates
(19
)
 
(29
)
Pension and retiree medical expense
22

 
26

Other adjustments to income from continuing operations
7

 
7

Dividends received from affiliates
7

 
8

Pension and retiree medical contributions
(48
)
 
(50
)
Restructuring payments
(12
)
 
(10
)
Changes in off-balance sheet accounts receivable factoring
(44
)
 
8

Changes in assets and liabilities, excluding effects of acquisitions, divestitures, foreign currency adjustments and discontinued operations
(44
)
 
(82
)
Operating cash flows used for continuing operations
(96
)
 
(38
)
Operating cash flows used for discontinued operations
(13
)
 
(8
)
CASH USED FOR OPERATING ACTIVITIES
$
(109
)
 
$
(46
)

14
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Inventories
Inventories are stated at the lower of cost (using FIFO or average methods) or market (determined on the basis of estimated realizable values) and are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Finished goods
$
172

 
$
185

Work in process
50

 
48

Raw materials, parts and supplies
198

 
205

Total
$
420

 
$
438

12. Other Current Assets
     Other current assets are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Current deferred income tax assets, net
$
23

 
$
27

Asbestos-related recoveries (see Note 20)
11

 
11

Deposits and collateral
5

 
4

Prepaid and other
15

 
19

Other current assets
$
54

 
$
61

13. Net Property
     Net property is summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Property at cost:
 
 
 
Land and land improvements
$
36

 
$
39

Buildings
224

 
253

Machinery and equipment
899

 
909

Company-owned tooling
150

 
156

Construction in progress
49

 
65

Total
1,358

 
1,422

Less accumulated depreciation
(963
)
 
(1,005
)
Net property
$
395

 
$
417


15
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14. Other Assets
     Other assets are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Investments in non-consolidated joint ventures
$
175

 
$
169

Asbestos-related recoveries (see Note 20)
63

 
63

Non-current deferred income tax assets, net
13

 
12

Unamortized debt issuance costs
30

 
29

Capitalized software costs, net
30

 
29

Prepaid pension costs
22

 
11

Other
36

 
40

Other assets
$
369

 
$
353

In accordance with FASB ASC Topic 350-40, costs relating to internally developed or purchased software in the preliminary project stage and the post-implementation stage are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.
The company holds a variable interest in a joint venture accounted for under the equity method of accounting. The joint venture manufactures components for commercial vehicle applications primarily on behalf of the company. The variable interest relates to a supply arrangement between the company and the joint venture whereby the company supplies certain components to the joint venture on a cost-plus basis. The company is not the primary beneficiary of the joint venture, as the joint venture partner has shared or absolute control over key manufacturing operations, labor relationships, financing activities and certain other functions of the joint venture. Therefore, the company does not consolidate the joint venture. At March 31, 2013 , the company’s investment in the joint venture was $36 million representing the company’s maximum exposure to loss. This amount is included in investments in non-consolidated joint ventures in the table above.
15. Other Current Liabilities
     Other current liabilities are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Compensation and benefits
$
122

 
$
136

Income taxes
14

 
15

Taxes other than income taxes
39

 
41

Accrued interest
10

 
5

Product warranties
17

 
16

Restructuring (see Note 6)
15

 
11

Asbestos-related liabilities (see Note 20)
19

 
19

Other
61

 
70

Other current liabilities
$
297

 
$
313


The company records estimated product warranty costs at the time of shipment of products to customers. Warranty reserves are primarily based on factors that include past claims experience, sales history, product manufacturing and engineering changes and industry developments. Liabilities for product recall campaigns are recorded at the time the company’s obligation is known and can be reasonably estimated. Product warranties, including recall campaigns, not expected to be paid within one year are recorded as a non-current liability.


16
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A summary of the changes in product warranties is as follows (in millions):
 
Six Months Ended
March 31,
 
2013
 
2012
Total product warranties – beginning of period
$
44

 
$
48

Accruals for product warranties
12

 
10

Payments
(8
)
 
(7
)
Change in estimates and other
(2
)
 
(5
)
Total product warranties – end of period
46

 
46

Less: Non-current product warranties
(29
)
 
(29
)
Product warranties – current
$
17

 
$
17

16. Other Liabilities
Other liabilities are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Asbestos-related liabilities (see Note 20)
$
93

 
$
93

Non-current deferred income tax liabilities
98

 
101

Liabilities for uncertain tax positions
25

 
27

Product warranties (see Note 15)
29

 
28

Environmental
10

 
10

Indemnity obligations
28

 
32

Other
44

 
47

Other liabilities
$
327

 
$
338

17. Long-Term Debt
     Long-Term Debt, net of discounts where applicable, is summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
8-1/8 percent notes due 2015
$
250

 
$
250

10-5/8 percent notes due 2018 (net of original issuance discount of $3)
247

 
247

4.625 percent convertible notes due 2026 (1)
55

 
300

4.0 percent convertible notes due 2027 (1)
200

 
200

7.875 percent convertible notes due 2026 (1) (net of original issuance discount of $25)
225

 
—

Term loan
95

 
98

Lines of credit and other
20

 
13

Unamortized gain on interest rate swap termination
9

 
10

Unamortized discount on convertible notes
(46
)
 
(58
)
Subtotal
1,055

 
1,060

Less: current maturities
(25
)
 
(18
)
Long-term debt
$
1,030

 
$
1,042

(1)  
The 4.625 percent, 4.0 percent and 7.875 percent convertible notes contain a put and call feature, which allows for earlier redemption beginning in 2016, 2019 and 2020, respectively.

17
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Revolving Credit Facility
 On April 23, 2012, the company amended and restated its revolving credit facility. Pursuant to the revolving credit facility agreement as amended, the company has a $429 million revolving credit facility, $14 million of which matures in January 2014 for a bank not electing to extend its commitments under the revolving credit facility existing at March 31, 2012 and the remaining $415 million of which matures in April 2017. The April 2017 maturity date is also subject to the following springing maturity condition: if on June 1, 2015, the outstanding principal amount of the company's $250 million bonds due 2015 is greater than $100 million , the maturity date becomes June 10, 2015. The availability under this facility is dependent upon various factors, including principally performance against certain financial covenants as highlighted below.
  The availability under the revolving credit facility is subject to certain financial covenants based on (i) the ratio of the company's priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA and (ii) the amount of annual capital expenditures. The company is required to maintain a total priority-debt-to-EBITDA ratio, as defined in the agreement, of (i) 2.50 to 1.00 as of the last day of the fiscal quarter commencing with the fiscal quarter ending on or about March 31, 2012 through and including the fiscal quarter ending on or about September 30, 2012, (ii) 2.25 to 1.00 as of the last day of each fiscal quarter commencing with the fiscal quarter ending on or about December 31, 2012 through and including the fiscal quarter ending on or about September 30, 2013, and (iii) 2.00 to 1.00 as of the last day of each fiscal quarter thereafter. At March 31, 2013, the company was in compliance with all covenants under its credit agreement with a ratio of approximately 0.61 x for the priority debt-to-EBITDA covenant.
     Availability under the amended and extended revolving credit facility is also subject to a collateral test, pursuant to which borrowings on the revolving credit facility cannot exceed 1.0x the collateral test value. The collateral test is performed on a quarterly basis. At March 31, 2013, the revolving credit facility was collateralized by approximately $589 million of the company's assets, primarily consisting of eligible domestic U.S. accounts receivable, inventory, plant, property and equipment, intellectual property and the company's investment in all or a portion of certain of its wholly-owned subsidiaries.
     Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a commitment fee on undrawn amounts, both of which are based upon the company's current corporate credit rating for senior secured facilities. At March 31, 2013, the margin over LIBOR rate was 425 basis points and the commitment fee was 50 basis points . Although a majority of our revolving credit loans are LIBOR based, overnight revolving credit loans are at the prime rate plus a margin of 325 basis points .
Certain of the company's subsidiaries, as defined in the credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly-held notes outstanding under the company's indentures (see Note 24).
No borrowings were outstanding under the revolving credit facility at March 31, 2013 and September 30, 2012. The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit. At March 31, 2013, no letters of credit were outstanding under the revolving credit facility, while $1 million in letters of credit were outstanding on September 30, 2012.
 Convertible Securities
In December 2012, the company issued $250 million of 7.875 percent convertible senior unsecured notes due 2026 (the “Notes”). The Notes were sold by the company to qualified institutional buyers in a private placement exempt from the registration requirements of the Securities Act of 1933. The Notes have an initial principal amount of $900 per note and will accrete to $1,000 per note on December 1, 2020 at an effective interest rate of 10.9 percent . Net proceeds received by the company, after issuance costs and discounts, were approximately $220 million .
The company will pay 7.875% cash interest on the principal amount at maturity of the Notes semi-annually in arrears on June 1 and December 1 of each year to holders of record at the close of business on the preceding May 15 and November 15, respectively, and at maturity to the holders that present the Notes for payment. Interest will accrue on the principal amount at maturity thereof from and including the date the Notes are issued or from, and including, the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date. Cash interest at a rate of 7.875 percent per annum on the principal amount at maturity of the convertible notes from the date of issuance through maturity is payable semi-annually in arrears on June 1 and December 1 of each year.

18
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the company's subsidiaries. The Notes are senior unsecured obligations and rank equally in right of payment with all of the company's existing and future senior unsecured indebtedness and are junior to any of the company existing and future secured indebtedness.
The Notes will be convertible in certain circumstances into cash up to the principal amount at maturity of the Note surrendered for conversion and, if applicable, shares of the company's common stock (subject to a conversion share cap as described below), based on an initial conversion rate, subject to adjustment, equivalent to 83.3333 shares per $1,000 principal amount at maturity of Notes (which represents an initial conversion price of $12.00 per share), only under the following circumstances:
(1) Prior to June 1, 2025, during any calendar quarter after the calendar quarter ending December 31, 2012, if the closing sale price of the Company's common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter ;
(2) Prior to June 1, 2025, during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount at maturity of Notes was equal to or less than 97% of the conversion value of the Notes on each trading day during such five consecutive trading day period ;
(3) Prior to June 1, 2025, if the company has called the Notes for redemption ;
(4) Prior to June 1, 2025, upon the occurrence of specified corporate transactions ; or
(5) At any time on or after June 1, 2025 .
On or after December 1, 2020, the company may redeem the Notes at its option, in whole or in part, at a redemption price in cash equal to 100% of the principal amount at maturity of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Further, holders may require the company to purchase all or a portion of their Notes at a purchase price in cash equal to 100% of the principal amount at maturity of the Notes to be purchased, plus accrued and unpaid interest, on December 1, 2020 or upon certain fundamental changes. The maximum number of shares of common stock those Notes are convertible into is 19,208,404 shares.
The company used the net proceeds of approximately $220 million from the offering of the Notes (after discounts and issuance costs) and additional cash to acquire a portion of its outstanding 4.625% convertible senior notes due 2026 (the “ 4.625% notes”) in transactions that settled concurrently with the closing of the 7.875% note offering. Approximately $245 million of $300 million principal amount of the 4.625% notes were acquired for an aggregate purchase price of approximately $236 million (including accrued interest). The company recognized a loss on debt extinguishment of $5 million .
Accounting guidance requires that cash-settled convertible debt, such as the company's 7.875 percent convertible senior unsecured notes due 2026, be separated into debt and equity components at issuance and a value be assigned to each. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount. The company measures the debt component at fair value by utilizing a discounted cash flow model. This model utilizes observable inputs such as contractual repayment terms, benchmark forward yield curves, and yield curves and quoted market prices of its own nonconvertible debt. The yield curves are acquired from an independent source that is widely used in the financial industry reviewed internally by personnel with appropriate expertise in valuation methodologies. The estimated fair value of the debt component of the Notes was $216 million (Level 2). The amount of the equity component recognized was $9 million .
Term Loan
     As part of the amendment and restatement of the revolving credit facility, on April 23, 2012, the company entered into a $100 million term loan agreement with a maturity date of April 23, 2017. The maturity date of April 23, 2017 is also subject to the springing maturity condition discussed under "Revolving Credit Facility" above. The term loan will amortize over a period of 5 years from the effective date as follows: $5 million principal to be repaid during year one, $10 million principal to be repaid in each of the years two, three and four; and the remaining principal balance to be paid in year five. Payments will be made on a quarterly basis for the duration of the term loan. As of March 31, 2013, the margin over LIBOR rate was 425 basis points . The company has the ability to prepay the term loan at any time without penalty or premium. At March 31, 2013, the outstanding balance on the term loan was $95 million .

19
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Capital Leases
     On March 20, 2012, the company entered into an arrangement to finance equipment acquisitions for various U.S. locations. Under this arrangement, the company can request financing from GE Capital Commercial, Inc. (GE Capital) for progress payments for equipment under construction, not to exceed $10 million at any point in time. The financing rate is equal to the 30-day LIBOR plus 575 basis points per annum. Under this arrangement, the company can also enter into lease arrangements with GE Capital for completed equipment. The lease term is 60 months and the lease interest rate is equal to the 5-year Swap Rate published by the Federal Reserve Board plus 564 basis points . As of March 31, 2013, the company had $12 million outstanding under these arrangements.
Letter of Credit Facilities
The company entered into a five-year credit agreement dated as of November 18, 2010 with Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto and the Bank of New York Mellon, as paying agent. Under the terms of this credit agreement, as amended, the company has the right to obtain the issuance, renewal, extension and increase of letters of credit up to an aggregate availability of $30 million . This facility contains covenants and events of default generally similar to those existing in our public debt indentures. There were $27 million and $30 million of letters of credit outstanding under this facility at March 31, 2013 and September 30, 2012, respectively. In addition, the company had another $9 million and $18 million of letters of credit outstanding through other letter of credit facilities at March 31, 2013 and September 30, 2012, respectively.
Accounts Receivable Securitization
 
The company has a $100 million U.S. accounts receivables securitization facility, which expires on June 18, 2015. This program is provided by PNC Bank, National Association (PNC), as Administrator, Market Street Funding, LLC, and the other Purchasers and Purchaser Agents from time to time (participating lenders), which are party to the agreement. Under this program, the company has the ability to sell an undivided percentage ownership interest in substantially all of its trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. Factoring Facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit issued for the company's U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the consolidated balance sheet. At March 31, 2013, no amounts, including letters of credit, were outstanding under this program. This program contains a financial covenant related to the company's priority-debt-to-EBITDA ratio, which is identical to the corresponding covenant in the company's revolving credit facility as it exists on the date of the agreement. In addition, this securitization program contains and a cross default to the company's revolving credit facility. The weighted average interest rate on borrowings under this arrangement was approximately 1.55 percent at March 31, 2013.
18. Financial Instruments
     Fair values of financial instruments are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Cash and cash equivalents
$
117

 
$
117

 
$
257

 
$
257

Short-term debt
25

 
23

 
18

 
17

Long-term debt
1,030

 
1,081

 
1,042

 
1,036

Foreign exchange forward contracts (asset)
2

 
2

 
3

 
3

Foreign exchange forward contracts (liability)
—

 
—

 
1

 
1


20
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Fair Value
The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical instruments (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
•
Level 1 inputs use quoted prices in active markets for identical instruments.
 
•
Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar instruments in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

•
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related instrument.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
Fair value of financial instruments by the valuation hierarchy at March 31, 2013 is as follows (in millions):
 
Level 1
 
Level 2
 
Level 3
Short-term debt
$
—

 
$
—

 
$
23

Long-term debt
—

 
991

 
90

Foreign exchange forward contracts (asset)
—

 
2

 
—

Foreign exchange forward contracts (liability)
—

 
—

 
—


Cash and cash equivalents — All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. The carrying value approximates fair value because of the short maturity of these instruments. The company did not have any cash equivalents at March 31, 2013 or September 30, 2012 .
     Short- and Long-term debt — Fair values are based on transaction prices at public exchange for publicly traded debt. For debt instruments that are not publicly traded, fair values are based on interest rates that would be currently available to the company for issuance of similar types of debt instruments with similar terms and remaining maturities.
Foreign exchange forward contracts — The company uses foreign exchange forward purchase and sale contracts with terms of one year or less to hedge its exposure to changes in foreign currency exchange rates. The fair value of foreign exchange forward contracts is based on a model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics.
19. Retirement Benefit Liabilities
     Retirement benefit liabilities consisted of the following (in millions):
 
March 31,
2013
 
September 30,
2012
Retiree medical liability
$
557

 
$
559

Pension liability
522

 
540

Other
25

 
24

Subtotal
1,104

 
1,123

Less: current portion (included in compensation and benefits, Note 15)
(48
)
 
(48
)
Retirement benefit liabilities
$
1,056

 
$
1,075



21
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The components of net periodic pension and retiree medical expense included in continuing operations for the three months ended March 31 are as follows:
 
2013
 
2012
 
Pension
 
Retiree Medical
 
Pension
 
Retiree Medical
Service cost
$
—

 
$
1

 
$
—

 
$
—

Interest cost
22

 
5

 
23

 
6

Assumed return on plan assets
(28
)
 
—

 
(26
)
 
—

Amortization of prior service costs
—

 
(2
)
 
—

 
(2
)
Recognized actuarial loss
6

 
6

 
5

 
6

Settlement charge
2

 
—

 
—

 
—

Total expense
$
2

 
$
10

 
$
2

 
$
10


The components of net periodic pension and retiree medical expense included in continuing operations for the six months ended March 31 are as follows:
 
2013
 
2012
 
Pension
 
Retiree Medical
 
Pension
 
Retiree Medical
Service cost
$
1

 
$
1

 
$
1

 
$
—

Interest cost
43

 
10

 
46

 
12

Assumed return on plan assets
(57
)
 
—

 
(52
)
 
—

Amortization of prior service costs
—

 
(4
)
 
—

 
(4
)
Recognized actuarial loss
13

 
13

 
10

 
13

Settlement charge
2

 
—

 
—

 
—

Total expense
$
2

 
$
20

 
$
5

 
$
21


20. Contingencies
Environmental
     Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have, and will continue to have, an impact on the operations of the company. The process of estimating environmental liabilities is complex and dependent upon evolving physical and scientific data at the sites, uncertainties as to remedies and technologies to be used and the outcome of discussions with regulatory agencies. The company records liabilities for environmental issues in the accounting period in which they are considered to be probable and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement with the site, as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which Meritor is the only potentially responsible party, the company records a liability for the total probable and estimable costs of remediation before consideration of recovery from insurers or other third parties.
     The company has been designated as a potentially responsible party at nine Superfund sites, excluding sites as to which the company’s records disclose no involvement or as to which the company’s liability has been finally determined. Management estimates the total reasonably possible costs the company could incur for the remediation of Superfund sites at March 31, 2013 to be approximately $19 million , of which $2 million is recorded as a liability. Included in reasonably possible amounts are estimates for certain remediation actions that may be required if current actions are deemed inadequate by the regulators.

22
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     In addition to the Superfund sites, various other lawsuits, claims and proceedings have been asserted against the company, alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental impairments, principally at previously disposed-of properties. For these matters, management has estimated the total reasonably possible costs the company could incur at March 31, 2013 to be approximately $42 million , of which $18 million is recorded as a liability.
     Included in the company’s environmental liabilities are costs for on-going operation, maintenance and monitoring at environmental sites in which remediation has been put into place. This liability is discounted using discount rates in the range of 0.25 to 3 percent and is approximately $10 million at March 31, 2013 . The undiscounted estimate of these costs is approximately $11 million .
     Following are the components of the Superfund and non-Superfund environmental reserves (in millions):
 
Superfund Sites
 
Non-Superfund Sites
 
Total
Balance at September 30, 2012
$
2

 
$
15

 
$
17

Payments and other
(1
)
 
(3
)
 
(4
)
Accruals (1)
1

 
6

 
7

Balance at March 31, 2013
$
2

 
$
18

 
$
20


(1)
Includes $5 million recognized in loss from discontinued operations in the consolidated statement of operations.
Environmental reserves are included in Other Current Liabilities and Other Liabilities (see Note 16) in the consolidated balance sheet.
     The actual amount of costs or damages for which the company may be held responsible could materially exceed the foregoing estimates because of uncertainties, including the financial condition of other potentially responsible parties, the success of the remediation, discovery of new contamination and other factors that make it difficult to predict actual costs accurately. However, based on management’s assessment, after consulting with outside advisors that specialize in environmental matters, and subject to the difficulties inherent in estimating these future costs, the company believes that its expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material effect on the company’s business, financial condition or results of operations. In addition, in future periods, new laws and regulations, changes in remediation plans, advances in technology and additional information about the ultimate clean-up remedies could significantly change the company’s estimates. Management cannot assess the possible effect of compliance with future requirements.
Asset Retirement Obligations
The company has identified conditional asset retirement obligations for which a reasonable estimate of fair value could not be made because the potential settlement dates cannot be determined at this time. Due to the long term, productive nature of the company’s manufacturing operations, absent plans or expectations of plans to initiate asset retirement activities, the company was not able to reasonably estimate the settlement date for the related obligations. Therefore, the company has not recognized conditional asset retirement obligations for which there are no plans or expectations of plans to retire the asset.
Asbestos
     Maremont Corporation (“Maremont”), a subsidiary of Meritor, manufactured friction products containing asbestos from 1953 through 1977, when it sold its friction product business. Arvin Industries, Inc., a predecessor of the company, acquired Maremont in 1986. Maremont and many other companies are defendants in suits brought by individuals claiming personal injuries as a result of exposure to asbestos-containing products. Maremont had approximately 5,000 pending asbestos-related claims at March 31, 2013 and September 30, 2012 . Although Maremont has been named in these cases, in the cases where actual injury has been alleged, very few claimants have established that a Maremont product caused their injuries. Plaintiffs’ lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or thousands of claimants, seeking damages against all named defendants irrespective of the disease or injury and irrespective of any causal connection with a particular product. For these reasons, Maremont does not consider the number of claims filed or the damages alleged to be a meaningful factor in determining its asbestos-related liability.

23
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Maremont’s asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Pending and future claims
$
75

 
$
75

Asbestos-related insurance recoveries
67

 
67

A portion of the asbestos-related recoveries and reserves are included in Other Current Assets and Liabilities, with the majority of the amounts recorded in Other Assets and Liabilities (see Notes 12, 14, 15 and 16).
     Prior to February 2001, Maremont participated in the Center for Claims Resolution (“CCR”) and shared with other CCR members in the payment of defense and indemnity costs for asbestos-related claims. The CCR handled the resolution and processing of asbestos claims on behalf of its members until February 2001, when it was reorganized and discontinued negotiating shared settlements. Since the CCR was reorganized in 2001, Maremont has handled asbestos-related claims through its own defense counsel and has taken a more aggressive defensive approach that involves examining the merits of each asbestos-related claim. Although the company expects legal defense costs to continue at higher levels than when it participated in the CCR, the company believes its litigation strategy has reduced the average indemnity cost per claim.
     Pending and Future Claims: Maremont engages Bates White LLC (Bates White), a consulting firm with extensive experience estimating costs associated with asbestos litigation, to assist with determining the estimated cost of resolving pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against Maremont. Bates White prepares these cost estimates annually in September. Although it is not possible to estimate the full range of costs because of various uncertainties, Bates White advised Maremont that it would be possible to determine an estimate of a reasonable forecast of the cost of the probable settlement and defense costs of resolving pending and future asbestos-related claims, based on historical data and certain assumptions with respect to events that may occur in the future.
     Bates White provided an estimate of the reasonably possible range of Maremont’s obligation for asbestos personal injury claims over the next ten years of $72 million to $88 million . Maremont recognized a liability of $75 million at March 31, 2013 and September 30, 2012. The ultimate cost of resolving pending and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms in jurisdictions with an established history with Maremont.
      Assumptions : The following assumptions were made by Maremont after consultation with Bates White and are included in their study:
•
Pending and future claims were estimated for a ten-year period ending in fiscal year 2022. The ten-year assumption is considered appropriate as Maremont has reached certain longer-term agreements with key plaintiff law firms and filings of mesothelioma claims have been relatively stable over the last few years resulting in an improvement in the reliability of future projections over a longer time period;
•
Maremont believes that the litigation environment will change significantly beyond ten years and that the reliability of estimates of future probable expenditures in connection with asbestos-related personal injury claims will decline for each year further in the future. As a result, estimating a probable liability beyond ten years is difficult and uncertain;
•
Defense and processing costs for pending and future claims filed outside of Madison County, Illinois will be at the level consistent with Maremont’s prior experience;
•
Potential payments made to claimants from other sources, including other defendants and 524(g) trusts favorably impact the company's estimated liability in the future; and
•
The ultimate indemnity cost of resolving nonmalignant claims with plaintiffs’ law firms in jurisdictions without an established history with Maremont cannot be reasonably estimated.
Recoveries : Maremont has insurance that reimburses a substantial portion of the costs incurred defending against asbestos-related claims. The coverage also reimburses Maremont for any indemnity paid on those claims. The coverage is provided by several insurance carriers based on insurance agreements in place. Incorporating historical information with respect to buy-outs and settlements of coverage, and excluding any policies in dispute, the insurance receivable related to asbestos-related liabilities is $67 million as of March 31, 2013 and September 30, 2012. The difference between the estimated liability and insurance receivable is primarily related to proceeds received from settled insurance policies. Certain insurance policies have been settled in cash prior to the ultimate settlement of the related asbestos liabilities. Amounts received from insurance settlements generally reduce recorded insurance receivables. Receivables for policies in dispute are not recorded.

24
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The amounts recorded for the asbestos-related reserves and recoveries from insurance companies are based upon assumptions and estimates derived from currently known facts. All such estimates of liabilities and recoveries for asbestos-related claims are subject to considerable uncertainty because such liabilities and recoveries are influenced by variables that are difficult to predict. The future litigation environment for Maremont could change significantly from its past experience, due, for example, to changes in the mix of claims filed against Maremont in terms of plaintiffs’ law firm, jurisdiction and disease; legislative or regulatory developments; Maremont’s approach to defending claims; or payments to plaintiffs from other defendants. Estimated recoveries are influenced by coverage issues among insurers and the continuing solvency of various insurance companies. If the assumptions with respect to the estimation period, nature of pending and future claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of liability for Maremont’s asbestos-related claims, and the effect on the company, could differ materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results of operations.
     Rockwell International (Rockwell) — ArvinMeritor, Inc. (AM), a subsidiary of Meritor, along with many other companies, has also been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos used in certain components of Rockwell products many years ago. Liability for these claims was transferred at the time of the spin-off of the automotive business from Rockwell in 1997. At March 31, 2013 and September 30, 2012, there were approximately 2,500 pending active asbestos claims in lawsuits that name AM, together with many other companies, as defendants. A significant portion of the claims do not identify any of Rockwell’s products or specify which of the claimants, if any, were exposed to asbestos attributable to Rockwell’s products, and past experience has shown that the vast majority of the claimants will likely never identify any of Rockwell’s products. Historically, AM has been dismissed from the vast majority of similar claims filed in the past with no payment to claimants. For those claimants who do show that they worked with Rockwell’s products, management nevertheless believes it has meritorious defenses, in substantial part due to the integrity of the products involved and the lack of any impairing medical condition on the part of many claimants. For these reasons, the company does not consider the number of claims filed or the damages alleged to be a meaningful factor in determining asbestos-related liabilities. The company defends these cases vigorously.
     Rockwell's asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Pending and future claims
$
37

 
$
37

Asbestos-related insurance recoveries
7

 
7

The company engages Bates White to assist with determining whether it would be possible to estimate the cost of resolving pending and future Rockwell legacy asbestos-related claims that have been, and could reasonably be expected to be, filed against the company. Bates White provided an estimate of the reasonably possible range of Rockwell’s obligation for asbestos personal injury claims over the next ten years of $37 million to $45 million . The company recognized a liability of $37 million at March 31, 2013 and September 30, 2012. The ultimate cost of resolving pending and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms in jurisdictions with an established history with Rockwell.

The following assumptions were made by the company after consultation with Bates White and are included in their study:
•
Pending and future claims were estimated for a ten-year period ending in fiscal year 2022. The ten year assumption is considered appropriate as Rockwell has reached certain longer-term agreements with key plaintiff law firms. In addition, filings of mesothelioma claims have been relatively stable over the last few years resulting in an improvement in the reliability of future projections over a longer time period;
•
The company believes that the litigation environment will change significantly beyond ten years, and that the reliability of estimates of future probable expenditures in connection with asbestos-related personal injury claims declines for each year further in the future. As a result, estimating a probable liability beyond ten years is difficult and uncertain;
•
Defense and processing costs for pending and future claims will be at the level consistent with the company's longer-term experience and will not have the significant volatility experienced in the recent years;
•
Potential payments made to claimants from other sources, including other defendants and 524(g) trusts favorably impact the company's estimated liability in the future; and
•
The ultimate indemnity cost of resolving nonmalignant claims with plaintiff’s law firms in jurisdictions without an established history with Rockwell cannot be reasonably estimated.


25
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In addition to the probable liability for pending and future claims discussed above, the company also recognized a liability of approximately $7 million in fiscal year 2012 associated with a previously disclosed asbestos-related claim (Gordon Bankhead) which was settled during the fourth quarter of fiscal year 2012. The payment required by this settlement agreement was made in the first quarter of fiscal year 2013.
     Rockwell maintained insurance coverage that management believes covers indemnity and defense costs, over and above self-insurance retentions, for most of these claims. The company has initiated claims against certain of these carriers to enforce the insurance policies, which are currently being disputed. The company expects to recover some portion of defense and indemnity costs it has incurred to date, over and above self-insured retentions, and some portion of the costs for defending asbestos claims going forward. Based on consultation with advisors and underlying analysis performed by management, the company has recorded an insurance receivable related to Rockwell legacy asbestos-related liabilities of $7 million at March 31, 2013 and September 30, 2012 . If the assumptions with respect to the estimation period, nature of pending claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of liability for Rockwell asbestos-related claims, and the effect on the company, could differ materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results of operations.
Indemnifications
In December 2005, the company guaranteed a third party’s obligation to reimburse another party for payment of health and prescription drug benefits to a group of retired employees. The retirees were former employees of a wholly-owned subsidiary of the company prior to it being acquired by the company. The wholly-owned subsidiary, which was part of the company’s light vehicle aftermarket business, was sold by the company in fiscal year 2006. Prior to May 2009, except as set forth hereinafter, the third party met its obligations to reimburse the other party. In May 2009, the third party filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code requiring the company to recognize its obligations under the guarantee. The company recorded a $28 million liability in fiscal year 2009 for this matter. At March 31, 2013 and September 30, 2012 , the remaining estimated liability for this matter was approximately $19 million .
     The company has provided indemnifications in conjunction with certain transactions, primarily divestitures. These indemnities address a variety of matters, which may include environmental, tax, asbestos and employment-related matters, and the periods of indemnification vary in duration.
On January 3, 2011, the company completed the sale of its Body Systems business. The sale agreement contains certain customary representations, warranties and covenants of the seller and the purchaser. The agreement also includes provisions governing post-closing indemnities between the seller and the purchaser for losses arising from specified events. At March 31, 2013 and September 30, 2012 the company has recognized estimates for such indemnities, primarily related to income tax matters, of $3 million and $4 million , respectively. This amount is included in other liabilities in the accompanying condensed consolidated balance sheet.
In connection with the sale of its interest in MSSC in October 2009, the company provided certain indemnifications to the buyer for its share of potential obligations related to pension funding shortfall, environmental and other contingencies, and valuation of certain accounts receivable and inventories. The company's estimated exposure under these indemnities at March 31, 2013 and September 30, 2012 is approximately $11 million and $14 million , respectively, and is included in other current liabilities and other liabilities in the condensed consolidated balance sheet.
The company is not aware of any other claims or other information that would give rise to material payments under such indemnifications.

26
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other
On March 31, 2008, S&E Quick Lube, a filter distributor, filed suit in U.S. District Court for the District of Connecticut alleging that several filter manufacturers and their affiliated corporate entities, including a prior subsidiary of the company, engaged in a conspiracy to fix prices, rig bids and allocate U.S. customers for aftermarket automotive filters. This suit was a purported class action on behalf of direct purchasers of filters from the defendants. Several parallel purported class actions, including on behalf of indirect purchasers of filters, were filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The U.S. cases were consolidated into a multi-district litigation proceeding in Federal court for the Northern District of Illinois. On April 16, 2009, the Attorney General of the State of Florida filed a complaint with the U.S. District Court for the Northern District of Illinois based on these same allegations. In April 2012, the company settled with indirect purchasers for $3.1 million . In August 2012, the company entered into a settlement agreement for the remaining claims with the U.S. direct purchasers for $8.3 million . The settlement payment was made during the first quarter of fiscal year 2013. Following this settlement, the only remaining plaintiffs in the litigation are those who filed their actions in Canada. The company believes any liability associated with the claims of such plaintiffs will be immaterial.
The company is evaluating certain sale transactions to determine if value added tax was required to be remitted to certain tax jurisdictions for the tax years 2007 through 2012. The company's estimated reasonably possible exposure for this matter is $6 million to $9 million . The company recorded $6 million as its estimate of the probable liability at March 31, 2013 and September 30, 2012.
In addition, various lawsuits, claims and proceedings, other than those specifically disclosed in the consolidated financial statements, have been or may be instituted or asserted against the company, relating to the conduct of the company’s business, including those pertaining to product liability, warranty or recall claims, intellectual property, safety and health, contract and employment matters. Although the outcome of other litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to the company, management believes the disposition of matters that are pending will not have a material effect on the company’s business, financial condition, results of operations or cash flows. 
21. Accumulated Other Comprehensive Loss (AOCL)
     The components of AOCL as reported in the consolidated balance sheet are as follows (in millions):
 
March 31,
2013
 
September 30,
2012
Foreign currency translation
$
91

 
$
93

Employee benefit related adjustments
(1,012
)
 
(1,010
)
Unrealized gains, net
2

 
2

Accumulated Other Comprehensive Loss
$
(919
)
 
$
(915
)

22. Business Segment Information
The company defines its operating segments as components of its business where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The company’s chief operating decision maker (CODM) is the Chief Executive Officer. On November 12, 2012, the company announced a revised management reporting structure resulting in two business segments. Prior period segment financial information presented has been recast to reflect the revised reporting structure.
      The company has two reportable segments at March 31, 2013, as follows:
•
The Commercial Truck & Industrial segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, for medium- and heavy-duty trucks, off-highway, military, construction, bus and coach, fire and emergency and other applications in North America, South America, Europe and Asia Pacific. This segment also includes the company's aftermarket businesses in Asia Pacific and South America; and
•
The Aftermarket & Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement and remanufactured parts, including transmissions, to commercial vehicle aftermarket customers in North America and Europe. This segment also supplies a wide variety of undercarriage products and systems for trailer applications in North America.

27
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring costs and asset impairment charges. The company uses Segment EBITDA as the primary basis for the CODM to evaluate the performance of each of its reportable segments.
     The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for the use of Segment EBITDA. The company may allocate certain common costs, primarily corporate functions, between the segments differently than the company would for stand alone financial information prepared in accordance with GAAP. These allocated costs include expenses for shared services such as information technology, finance, communications, legal and human resources. The company does not allocate interest expense and certain legacy and other corporate costs not directly associated with the Segments’ EBITDA.
     Segment information is summarized as follows (in millions):
 
Commercial Truck
& Industrial
 
Aftermarket
& Trailer
 
Eliminations
 
Total
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
External Sales
$
689

 
$
219

 
$
—

 
$
908

Intersegment Sales
23

 
5

 
(28
)
 
—

Total Sales
$
712

 
224

 
$
(28
)
 
$
908

Three Months Ended March 31, 2012
 
 
 
 
 
 
 
External Sales
$
924

 
$
236

 
$
—

 
$
1,160

Intersegment Sales
28

 
7

 
(35
)
 
—

Total Sales
$
952

 
243

 
$
(35
)
 
$
1,160

 
Commercial
 Truck
 
Aftermarket &
 Trailer
 
Eliminations
 
Total
Six Months Ended March 31, 2013
 
 
 
 
 
 
 
External Sales
$
1,383

 
$
416

 
$
—

 
$
1,799

Intersegment Sales
44

 
11

 
(55
)
 
—

Total Sales
$
1,427

 
$
427

 
$
(55
)
 
$
1,799

Six Months Ended March 31, 2012
 
 
 
 
 
 
 
External Sales
$
1,872

 
$
447

 
$
—

 
$
2,319

Intersegment Sales
55

 
14

 
(69
)
 
—

Total Sales
$
1,927

 
$
461

 
$
(69
)
 
$
2,319



28
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Segment EBITDA:
 
 
 
 
 
 
 
Commercial Truck & Industrial
$
37

 
$
75

 
$
71

 
$
136

Aftermarket & Trailer
22

 
24

 
35

 
41

Segment EBITDA
59

 
99

 
106

 
177

Unallocated legacy and corporate costs, net (1)
(1
)
 
(4
)
 
(2
)
 
(3
)
Interest expense, net
(25
)
 
(23
)
 
(54
)
 
(47
)
Provision for income taxes
(7
)
 
(17
)
 
(17
)
 
(37
)
Depreciation and amortization
(17
)
 
(16
)
 
(33
)
 
(33
)
Loss on sale of receivables
(2
)
 
(3
)
 
(3
)
 
(6
)
Restructuring costs
(11
)
 
(3
)
 
(17
)
 
(27
)
Noncontrolling interests
—

 
(4
)
 
—

 
(8
)
Income (loss) from continuing operations attributable to Meritor, Inc.
$
(4
)
 
$
29

 
$
(20
)
 
$
16

(1)  
Unallocated legacy and corporate costs, net represent items that are not directly related to our business segments and include pension and retiree medical costs associated with sold businesses and other legacy costs for environmental and product liability matters.
Segment Assets:
March 31,
2013
 
September 30,
2012
Commercial Truck & Industrial (1)
$
1,737

 
$
—

Aftermarket & Trailer
469

 
505

Commercial Truck (1)
—

 
1,341

Industrial (1)
—

 
423

Total segment assets
2,206

 
2,269

Corporate (2)
344

 
487

Less: Accounts receivable sold under off-balance sheet factoring programs (3)
(213
)
 
(255
)
Total assets
$
2,337

 
$
2,501

(1)  
In fiscal year 2013, the company reorganized its management structure resulting in two reportable segments.
(2)  
Corporate assets consist primarily of cash, deferred income taxes and prepaid pension costs.
(3)  
At March 31, 2013 and September 30, 2012 segment assets include $213 million and $255 million , respectively, of accounts receivable sold under off-balance sheet accounts receivable factoring programs (See Note 9). These sold receivables are included in segment assets as the CODM reviews segment assets inclusive of these balances.
23. Subsequent Events
On April 29, 2013, subsidiaries of the company entered into a purchase and sale agreement (the “Agreement”) to sell the company's overall 50 percent ownership interest in Suspensys Sistemas Automotivos LTDA (the “Suspensys JV”) to the company's joint venture partner, Randon S.A. Implementos E Participações (“Randon”). The Suspensys JV was formed in 2002 and is primarily engaged in the manufacture and sale of air and mechanical suspension systems for trucks, buses and trailers, trailer axles, third axles, hubs and drums for trucks, buses and trailers.


29
Index
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The purchase price for the sale is $195 million , which is composed of $190 million in cash (approximately $5 million of which is expected be in the form of a pre-closing cash dividend) and $5 million in lease abatements for a facility in Brazil leased by one of the sellers from Randon. The Agreement is subject to regulatory approvals (including the clearance of applicable competition law waiting periods in Brazil). The sale is expected to be consummated as soon as practicable after closing conditions are met and in any event by September 1, 2013. Under the Agreement, the closing date will be automatically extended to the extent the closing conditions have not been met (provided such conditions are not in the control of the parties) and in any event can be extended by mutual agreement of the parties. As a result of this transaction, the company is expecting to record a gain on sale.

24. Supplemental Guarantor Condensed Consolidating Financial Statements
Certain of the company’s wholly-owned subsidiaries, as defined in the credit agreement (the Guarantors) irrevocably and unconditionally provide joint and several guarantee for the amounts outstanding under the senior secured revolving credit facility. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-held notes outstanding under the company’s indentures (see Note 17).
     In lieu of providing separate financial statements for the Guarantors, the company has included the accompanying condensed consolidating financial statements. These condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiary’s cumulative results of operations, capital contributions and distributions and other equity changes. The Guarantor subsidiaries are combined in the condensed consolidating financial statements.

30
Index                         
MERITOR, INC.
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPRHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)


 
Three Months Ended March 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
Sales
 
 
 
 
 
 
 
 
 
External
$
—

 
$
355

 
$
553

 
$
—

 
$
908

Subsidiaries
—

 
33

 
20

 
(53
)
 
—

Total sales
—

 
388

 
573

 
(53
)
 
908

Cost of sales
(14
)
 
(335
)
 
(517
)
 
53

 
(813
)
GROSS MARGIN
(14
)
 
53

 
56

 
—

 
95

Selling, general and administrative
(23
)
 
(21
)
 
(21
)
 
—

 
(65
)
Restructuring costs
(3
)
 
(3
)
 
(5
)
 
—

 
(11
)
Other operating expense
(1
)
 
—

 
—

 
—

 
(1
)
OPERATING INCOME (LOSS)
(41
)
 
29

 
30

 
—

 
18

       Other income (loss), net
39

 
(13
)
 
(26
)
 
—

 
—

Equity in earnings of affiliates
—

 
5

 
5

 
—

 
10

Interest income (expense), net
(32
)
 
8

 
(1
)
 
—

 
(25
)
INCOME (LOSS) BEFORE INCOME TAXES
(34
)
 
29

 
8

 
—

 
3

Provision for income taxes
—

 
(1
)
 
(6
)
 
—

 
(7
)
Equity income (loss) from continuing operations of subsidiaries
30

 
(4
)
 
—

 
(26
)
 
—

INCOME (LOSS) FROM CONTINUING OPERATIONS
(4
)
 
24

 
2

 
(26
)
 
(4
)
LOSS FROM DISCONTINUED OPERATIONS, net of tax
—

 
$
—

 
$
—

 
$
—

 
$
—

Net income (loss)
(4
)
 
24

 
2

 
(26
)
 
(4
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
$
(4
)
 
$
24

 
$
2

 
$
(26
)
 
$
(4
)
Other comprehensive income (loss)
3

 
(16
)
 
15

 
—

 
2

Comprehensive income (loss) attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

Total comprehensive income (loss)
$
(1
)
 
$
8

 
$
17

 
$
(26
)
 
$
(2
)


31
Index                         
MERITOR, INC.
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPRHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)


 
Three Months Ended March 31, 2012
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
Sales
 
 
 
 
 
 
 
 
 
External
$
—

 
$
448

 
$
712

 
$
—

 
$
1,160

Subsidiaries
—

 
40

 
24

 
(64
)
 
—

Total sales
—

 
488

 
736

 
(64
)
 
1,160

Cost of sales
(13
)
 
(418
)
 
(659
)
 
64

 
(1,026
)
GROSS MARGIN
(13
)
 
70

 
77

 
—

 
134

Selling, general and administrative
(21
)
 
(24
)
 
(27
)
 
—

 
(72
)
Restructuring costs
—

 
—

 
(3
)
 
—

 
(3
)
Other operating expense
—

 
—

 
(1
)
 
—

 
(1
)
OPERATING INCOME (LOSS)
(34
)
 
46

 
46

 
—

 
58

       Other income (loss), net
41

 
(8
)
 
(32
)
 
—

 
1

Equity in earnings of affiliates
—

 
10

 
4

 
—

 
14

Interest income (expense), net
(30
)
 
5

 
2

 
—

 
(23
)
INCOME (LOSS) BEFORE INCOME TAXES
(23
)
 
53

 
20

 
—

 
50

Benefit (provision) for income taxes
(1
)
 
(2
)
 
(14
)
 
—

 
(17
)
Equity income (loss) from continuing operations of subsidiaries
53

 
(2
)
 
—

 
(51
)
 
—

INCOME FROM CONTINUING OPERATIONS
29

 
49

 
6

 
(51
)
 
33

LOSS FROM DISCONTINUED OPERATIONS, net of tax
(9
)
 
$
(2
)
 
$
—

 
$
2

 
$
(9
)
NET INCOME
20

 
47

 
6

 
(49
)
 
24

Less: Net income attributable to noncontrolling interests
—

 
—

 
(4
)
 
—

 
(4
)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.
$
20

 
$
47

 
$
2

 
$
(49
)
 
$
20

Other comprehensive income (loss)
(4
)
 
14

 
4

 
—

 
14

Comprehensive income (loss) attributable to noncontrolling interests
—

 
—

 
5

 
—

 
5

Total comprehensive income (loss)
$
16

 
$
61

 
$
11

 
$
(49
)
 
$
39



32
Index                         
MERITOR, INC.
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPRHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)


 
Six Months Ended March 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
Sales
 
 
 
 
 
 
 
 
 
External
$
—

 
$
709

 
$
1,090

 
$
—

 
$
1,799

Subsidiaries
—

 
67

 
37

 
(104
)
 
—

Total sales
—

 
776

 
1,127

 
(104
)
 
1,799

Cost of sales
(26
)
 
(680
)
 
(1,019
)
 
104

 
(1,621
)
GROSS MARGIN
(26
)
 
96

 
108

 
—

 
178

Selling, general and administrative
(44
)
 
(41
)
 
(42
)
 
—

 
(127
)
Restructuring costs
(3
)
 
(6
)
 
(8
)
 
—

 
(17
)
Other operating expense
(2
)
 
—

 
—

 
—

 
(2
)
OPERATING INCOME (LOSS)
(75
)
 
49

 
58

 
—

 
32

       Other income (loss), net
35

 
(13
)
 
(22
)
 
—

 
—

Equity in earnings of affiliates
—

 
10

 
9

 
—

 
19

Interest income (expense), net
(69
)
 
16

 
(1
)
 
—

 
(54
)
INCOME (LOSS) BEFORE INCOME TAXES
(109
)
 
62

 
44

 
—

 
(3
)
Provision for income taxes
—

 
(3
)
 
(14
)
 
—

 
(17
)
Equity income (loss) from continuing operations of subsidiaries
89

 
19

 
—

 
(108
)
 
—

INCOME (LOSS) FROM CONTINUING OPERATIONS
(20
)
 
78

 
30

 
(108
)
 
(20
)
LOSS FROM DISCONTINUED OPERATIONS, net of tax
(5
)
 
$
(4
)
 
$
(4
)
 
$
8

 
$
(5
)
Net income (loss)
(25
)
 
74

 
26

 
(100
)
 
(25
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
$
(25
)
 
$
74

 
$
26

 
$
(100
)
 
$
(25
)
Other comprehensive income (loss)
1

 
(1
)
 
(4
)
 
—

 
(4
)
Comprehensive income (loss) attributable to noncontrolling interests
—

 
—

 
1

 
—

 
1

Total comprehensive income (loss)
$
(24
)
 
$
73

 
$
23

 
$
(100
)
 
$
(28
)



33
Index                         
MERITOR, INC.
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPRHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)


 
Six Months Ended March 31, 2012
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
Sales
 
 
 
 
 
 
 
 
 
External
$
—

 
$
819

 
$
1,500

 
$
—

 
$
2,319

Subsidiaries
—

 
72

 
47

 
(119
)
 
—

Total sales
—

 
891

 
1,547

 
(119
)
 
2,319

Cost of sales
(25
)
 
(784
)
 
(1,389
)
 
119

 
(2,079
)
GROSS MARGIN
(25
)
 
107

 
158

 
—

 
240

Selling, general and administrative
(43
)
 
(43
)
 
(51
)
 
—

 
(137
)
Restructuring costs
—

 
—

 
(27
)
 
—

 
(27
)
Other operating expense
(1
)
 
—

 
(1
)
 
—

 
(2
)
OPERATING INCOME (LOSS)
(69
)
 
64

 
79

 
—

 
74

       Other income (loss), net
41

 
(8
)
 
(28
)
 
—

 
5

Equity in earnings of affiliates
—

 
19

 
10

 
—

 
29

Interest income (expense), net
(61
)
 
12

 
2

 
—

 
(47
)
INCOME (LOSS) BEFORE INCOME TAXES
(89
)
 
87

 
63

 
—

 
61

Provision for income taxes
(1
)
 
(5
)
 
(31
)
 
—

 
(37
)
Equity income from continuing operations of subsidiaries
106

 
17

 
—

 
(123
)
 
—

INCOME FROM CONTINUING OPERATIONS
16

 
99

 
32

 
(123
)
 
24

LOSS FROM DISCONTINUED OPERATIONS, net of tax
(18
)
 
$
(7
)
 
$
(3
)
 
$
10

 
$
(18
)
NET INCOME (LOSS)
(2
)
 
92

 
29

 
(113
)
 
6

Less: Net income attributable to noncontrolling interests
—

 
—

 
(8
)
 
—

 
(8
)
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
$
(2
)
 
$
92

 
$
21

 
$
(113
)
 
$
(2
)
Other comprehensive income (loss)
—

 
(16
)
 
25

 
—

 
9

Comprehensive income (loss) attributable to noncontrolling interests
—

 
—

 
8

 
—

 
8

Total comprehensive income (loss)
$
(2
)
 
$
76

 
$
54

 
$
(113
)
 
$
15




34
Index
MERITOR, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
(Unaudited)


 
March 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
45

 
$
3

 
$
69

 
$
—

 
$
117

Receivables trade and other, net
—

 
27

 
528

 
—

 
555

Inventories
—

 
166

 
254

 
—

 
420

Other current assets
2

 
18

 
34

 
—

 
54

TOTAL CURRENT ASSETS
47

 
214

 
885

 
—

 
1,146

NET PROPERTY
9

 
140

 
246

 
—

 
395

GOODWILL
—

 
275

 
152

 
—

 
427

OTHER ASSETS
72

 
173

 
124

 
—

 
369

INVESTMENTS IN SUBSIDIARIES
1,494

 
96

 
—

 
(1,590
)
 
—

TOTAL ASSETS
$
1,622

 
$
898

 
$
1,407

 
$
(1,590
)
 
$
2,337

CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Short-term debt
$
10

 
$
7

 
$
8

 
$
—

 
$
25

Accounts payable
50

 
150

 
416

 
—

 
616

Other current liabilities
93

 
57

 
147

 
—

 
297

TOTAL CURRENT LIABILITIES
153

 
214

 
571

 
—

 
938

LONG-TERM DEBT
1,025

 
5

 
—

 
—

 
1,030

RETIREMENT BENEFITS
933

 
—

 
123

 
—

 
1,056

INTERCOMPANY PAYABLE (RECEIVABLE)
483

 
(1,085
)
 
602

 
—

 
—

OTHER LIABILITIES
70

 
186

 
71

 
—

 
327

EQUITY (DEFICIT) ATTRIBUTABLE TO
       MERITOR, INC.
(1,042
)
 
1,578

 
12

 
(1,590
)
 
(1,042
)
NONCONTROLLING INTERESTS
—

 
—

 
28

 
—

 
28

TOTAL LIABILITIES AND EQUITY (DEFICIT)
$
1,622

 
$
898

 
$
1,407

 
$
(1,590
)
 
$
2,337


35
Index
MERITOR, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
(Unaudited)


 
September 30, 2012
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
91

 
$
3

 
$
163

 
$
—

 
$
257

Receivables trade and other, net
—

 
35

 
507

 
—

 
542

Inventories
—

 
183

 
255

 
—

 
438

Other current assets
6

 
20

 
35

 
—

 
61

TOTAL CURRENT ASSETS
97

 
241

 
960

 
—

 
1,298

NET PROPERTY
12

 
143

 
262

 
—

 
417

GOODWILL
—

 
275

 
158

 
—

 
433

OTHER ASSETS
70

 
176

 
107

 
—

 
353

INVESTMENTS IN SUBSIDIARIES
1,468

 
85

 
—

 
(1,553
)
 
—

TOTAL ASSETS
$
1,647

 
$
920

 
$
1,487

 
$
(1,553
)
 
$
2,501

CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Short-term debt
$
10

 
$
1

 
$
7

 
$
—

 
$
18

Accounts payable
49

 
195

 
453

 
—

 
697

Other current liabilities
96

 
62

 
155

 
—

 
313

TOTAL CURRENT LIABILITIES
155

 
258

 
615

 
—

 
1,028

LONG-TERM DEBT
1,039

 
3

 
—

 
—

 
1,042

RETIREMENT BENEFITS
950

 
—

 
125

 
—

 
1,075

INTERCOMPANY PAYABLE (RECEIVABLE)
445

 
(1,053
)
 
608

 
—

 
—

OTHER LIABILITIES
81

 
185

 
72

 
—

 
338

EQUITY (DEFICIT) ATTRIBUTABLE TO
       MERITOR, INC.
(1,023
)
 
1,527

 
26

 
(1,553
)
 
(1,023
)
NONCONTROLLING INTERESTS
—

 
—

 
41

 
—

 
41

TOTAL LIABILITIES AND EQUITY (DEFICIT)
$
1,647

 
$
920

 
$
1,487

 
$
(1,553
)
 
$
2,501


36
Index
MERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)


 
Six Months Ended March 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
CASH FLOWS PROVIDED BY (USED FOR)
       OPERATING ACTIVITIES
$
(36
)
 
$
4

 
$
(77
)
 
$
—

 
$
(109
)
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(2
)
 
(8
)
 
(13
)
 
—

 
(23
)
Net investing cash flows provided by discontinued operations
—

 
3

 
3

 
—

 
6

CASH USED FOR INVESTING ACTIVITIES
(2
)
 
(5
)
 
(10
)
 
—

 
(17
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Repayment of notes and term loan
(236
)
 
—

 
—

 
—

 
(236
)
Proceeds from debt issuance
225

 
—

 
—

 
—

 
225

Debt issuance costs
(6
)
 
—

 
—

 
—

 
(6
)
Intercompany advances
9

 
—

 
(9
)
 
—

 
—

Other financing activities
—

 
1

 
1

 
—

 
2

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
(8
)
 
1

 
(8
)
 
—

 
(15
)
EFFECT OF FOREIGN CURRENCY EXCHANGE
       RATES ON CASH AND CASH EQUIVALENTS
—

 
—

 
1

 
—

 
1

CHANGE IN CASH AND CASH EQUIVALENTS
(46
)
 
—

 
(94
)
 
—

 
(140
)
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
91

 
3

 
163

 
—

 
257

CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$
45

 
$
3

 
$
69

 
$
—

 
$
117


37
Index
MERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)


 
Six Months Ended March 31, 2012
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Elims
 
Consolidated
CASH FLOWS PROVIDED BY (USED FOR)
       OPERATING ACTIVITIES
$
(36
)
 
$
21

 
$
(31
)
 
$
—

 
$
(46
)
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(2
)
 
(18
)
 
(23
)
 
—

 
(43
)
Proceeds from sale of property
—

 
—

 
18

 
—

 
18

Other investing activities
—

 
1

 
(3
)
 
—

 
(2
)
Net investing cash flows provided by discontinued operations
—

 
—

 
28

 
—

 
28

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
(2
)
 
(17
)
 
20

 
—

 
1

FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Borrowings on accounts receivable securitization program, net
—

 
—

 
19

 
—

 
19

Repayment of notes
(84
)
 
—

 
—

 
—

 
(84
)
Intercompany advances
40

 
—

 
(40
)
 
—

 
—

CASH USED FOR FINANCING ACTIVITIES
(44
)
 
—

 
(21
)
 
—

 
(65
)
EFFECT OF FOREIGN CURRENCY EXCHANGE
       RATES ON CASH AND CASH EQUIVALENTS
—

 
—

 
2

 
—

 
2

CHANGE IN CASH AND CASH EQUIVALENTS
(82
)
 
4

 
(30
)
 
—

 
(108
)
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
92

 
4

 
121

 
—

 
217

CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$
10

 
$
8

 
$
91

 
$
—

 
$
109




38

MERITOR, INC.

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
OVERVIEW
Meritor, Inc. (the "company", "our", "we" or "Meritor"), headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, off-highway, military, bus and coach and other industrial OEMs and certain aftermarkets. Meritor common stock is traded on the New York Stock Exchange under the ticker symbol MTOR.
Segment Reorganization
On November 12, 2012, we announced a revised management reporting structure resulting in two business segments: (1) Commercial Truck & Industrial and (2) Aftermarket & Trailer. We revised our reporting structure to drive efficiencies across the corporation. Prior period segment financial information has been recast to reflect the revised reporting structure.
2nd Quarter Fiscal Year 2013 results
Our sales for the second quarter of fiscal year 2013 were $908 million , down compared to $1,160 million in the prior year. This decrease was primarily driven by lower production volumes in all geographies except South America. Loss from continuing operations in the second quarter of fiscal year 2013 was $4 million , or $0.04 per diluted share, compared to income from continuing operations of $29 million , or $0.30 per diluted share, in the prior year. Net loss for the second quarter of fiscal year 2013 was $4 million compared to net income of $20 million in the prior year.
Adjusted EBITDA (see Non-GAAP Financial Measures below) for the second quarter of fiscal year 2013 was $58 million compared to $95 million in the second quarter of fiscal year 2012. Our Adjusted EBITDA margin in the second quarter of fiscal year 2013 was 6.4 percent compared to 8.2 percent in the same period a year ago. Total Adjusted EBITDA and Adjusted EBITDA margin decreased compared to the prior year primarily as a result of lower sales and the corresponding lower earnings from our unconsolidated joint ventures in the second quarter of fiscal year 2013. The impact of lower sales on Adjusted EBITDA margin was partially mitigated by lower material and structural costs and the favorable impact of pricing actions.
Cash flows used by operating activities was $18 million in the second quarter of fiscal year 2013 compared to $51 million in the second quarter of the prior fiscal year. The improvement in cash flows in the second quarter of fiscal year 2013 was primarily due to an improvement in performance working capital.
2nd Quarter Restructuring Initiative (Asia-Pacific Reorganization)
On March 26, 2013, the company announced plans to restructure its on-highway business in China to improve its efficiency and reduce overhead costs by leveraging existing footprint and overhead structure. The company is transferring its manufacturing operations from Wuxi to Xuzhou Meritor Axle Co. Ltd. (XMAL), our off-highway joint venture with Xuzhou Construction Machinery Group (XCMG). The move of manufacturing operations was substantially completed by April 15, and we expect to close our plant in Wuxi in the third quarter. In addition, the Nanjing site will not be utilized as originally planned. The company is working with local officials to explore options related to the facility, including subleasing.
Sale of Ownership Interest in Suspensys Sistemas Automotivos LTDA
On April 29, 2013, subsidiaries of the company entered into a purchase and sale agreement (the “Agreement”) to sell the company's overall 50 percent ownership interest in Suspensys Sistemas Automotivos LTDA (the “Suspensys JV”) to the company's joint venture partner, Randon S.A. Implementos E Participações (“Randon”). The Suspensys JV was formed in 2002 and is primarily engaged in the manufacture and sale of air and mechanical suspension systems for trucks, buses and trailers, trailer axles, third axles, hubs and drums for trucks, buses and trailers.

The purchase price for the sale is $195 million, which is composed of $190 million in cash (approximately $5 million of which is expected be in the form of a pre-closing cash dividend) and $5 million in lease abatements for a facility in Brazil leased by one of the sellers from Randon. The Agreement is subject to regulatory approvals (including the clearance of applicable competition law waiting periods in Brazil). The sale is expected to be consummated as soon as practicable after closing conditions are met and in any event by September 1, 2013. Under the Agreement, the closing date will be automatically extended to the extent the closing conditions have not been met (provided such conditions are not in the control of the parties) and in any event can be extended by mutual agreement of the parties. As a result of this transaction, the company is expecting to record a gain on sale.



39

MERITOR, INC.

     Trends and Uncertainties
     Production Volumes
     The following table reflects estimated commercial truck production volumes for selected original equipment (OE) markets for the three months ended March 31, 2013 and 2012 based on available sources and management’s estimates.
 
Three Months Ended March 31,
 
Percent
 
2013
 
2012
 
Change
Estimated Commercial Truck (in thousands)
 
 
 
 
 
North America, Heavy-Duty Trucks
56

 
78

 
(28
)%
North America, Medium-Duty Trucks
45

 
48

 
(6
)%
Western Europe, Heavy- and Medium-Duty Trucks
81

 
94

 
(14
)%
South America, Heavy- and Medium-Duty Trucks
38

 
32

 
19
 %

We expect production volumes in North America and Europe to soften compared to the levels experienced in fiscal year 2012. Beginning in second quarter of fiscal year 2012, production volumes in South America declined significantly as the industry transitioned to tighter emission standard requirements for commercial vehicles. The recovery of production volumes has been slower than previously expected although we have started to see improvement in fiscal year 2013. Production volumes in the Asia-Pacific region, more specifically China and India, have decreased compared to levels experienced in fiscal year 2012, and there is no certainty as to when these volumes will return to the levels previously experienced.
Industry-Wide Issues
Our business continues to address a number of other challenging industry-wide issues including the following:
•
Uncertainty around the global market outlook;
•
Volatility in price and availability of steel, components and other commodities;
•
Disruptions in the financial markets and their impact on the availability and cost of credit;
•
Higher energy and transportation costs;
•
Impact of currency exchange rate volatility;
•
Consolidation and globalization of OEMs and their suppliers; and
•
Significant pension and retiree medical health care costs.
Other
Other significant factors that could affect our results and liquidity in fiscal year 2013 include:
•
Significant contract awards or losses of existing contracts or failure to negotiate acceptable terms in contract renewal negotiations including, without limitation, negotiations with our largest customer, Volvo, which are ongoing regarding our contract with Volvo covering axle supply in Europe, South America and Australia, which is scheduled to expire in October 2014;
•
Ability to work with our customers to manage rapidly changing production volumes;
•
Ability to recover and timing of recovery of steel price and other cost increases from our customers;
•
Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, in the event one or more countries exit the European monetary union;
•
Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;
•
A significant deterioration or slowdown in economic activity in the key markets in which we operate;
•
Higher than planned price reductions to our customers;
•
Potential price increases from our suppliers;
•
Additional restructuring actions and the timing and recognition of restructuring charges;
•
Higher than planned warranty expenses, including the outcome of known or potential recall campaigns;
•
Our ability to implement planned productivity, cost reduction, and other margin improvement initiatives; and
•
Restrictive government actions by foreign countries (such as restrictions on transfer of funds and trade protection measures, including export duties and quotas and customs duties and tariffs).

40

MERITOR, INC.

NON-GAAP FINANCIAL MEASURES
In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP), we have provided information regarding non-GAAP financial measures. These non-GAAP financial measures include Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations, Adjusted EBITDA, Adjusted EBITDA margin, Free cash flow and Free cash flow from continuing operations before restructuring payments.
     Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations before restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by consolidated sales. Free cash flow is defined as cash flows provided by (used for) operating activities less capital expenditures.
     Management believes Adjusted EBITDA and Adjusted income (loss) from continuing operations are meaningful measures of performance as they are commonly utilized by management and investors to analyze ongoing operating performance and entity valuation. Management, the investment community and banking institutions routinely use Adjusted EBITDA and Adjusted EBITDA margins, together with other measures, to measure operating performance in our industry. Further, management uses Adjusted EBITDA for planning and forecasting future periods. In addition, we use Segment EBITDA as the primary basis to evaluate the performance of each of our reportable segments. Management believes that Free cash flow is useful in analyzing our ability to service and repay debt.
     Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations and Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Free cash flow should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, these non-GAAP cash flow measures do not reflect cash used to service debt or cash received from the divestitures of businesses or sales of other assets and thus do not reflect funds available for investment or other discretionary uses. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies. Set forth below are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share are reconciled to income (loss) from continuing operations and diluted earnings (loss) per share below (in millions, except per share amounts).
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Adjusted income (loss) from continuing operations
$
6

 
$
32

 
$
(5
)
 
$
43

Restructuring costs, net of tax
(10
)
 
(3
)
 
(15
)
 
(27
)
Income (loss) from continuing operations
$
(4
)
 
$
29

 
$
(20
)
 
$
16

Adjusted diluted earnings (loss) per share from continuing operations
$
0.06

 
$
0.33

 
$
(0.05
)
 
$
0.45

Impact of adjustments on diluted earnings (loss) per share
(0.10
)
 
(0.03
)
 
(0.15
)
 
(0.28
)
Diluted earnings (loss) per share from continuing operations
$
(0.04
)
 
$
0.30

 
$
(0.20
)
 
$
0.17


41

MERITOR, INC.

Free cash flow and Free cash flow from continuing operations before restructuring payments are reconciled to cash flows used for operating activities below (in millions).
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
Cash used for operating activities – continuing operations
$
(15
)
 
$
(46
)
 
$
(96
)
 
$
(38
)
Capital expenditures – continuing operations
(8
)
 
(18
)
 
(23
)
 
(43
)
Free cash flow – continuing operations
(23
)
 
(64
)
 
(119
)
 
(81
)
Cash used for operating activities – discontinued operations
(3
)
 
(5
)
 
(13
)
 
(8
)
Free cash flow – discontinued operations
(3
)
 
(5
)
 
(13
)
 
(8
)
Free cash flow – total company
$
(26
)
 
$
(69
)
 
$
(132
)
 
$
(89
)
Free cash flow – continuing operations
$
(23
)
 
$
(64
)
 
$
(119
)
 
$
(81
)
Restructuring payments – continuing operations
7

 
3

 
12

 
10

Free cash flow from continuing operations before restructuring payments
$
(16
)
 
$
(61
)
 
$
(107
)
 
$
(71
)
  

42

MERITOR, INC.

   Adjusted EBITDA is reconciled to net income attributable to Meritor, Inc. in “Results of Operations” below.
Results of Operations
The following is a summary of our financial results is (in millions, except per share amounts):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
SALES:
 
 
 
 
 
 
 
Commercial Truck & Industrial
$
712

 
$
952

 
$
1,427

 
$
1,927

Aftermarket & Trailer
224

 
243

 
427

 
461

Intersegment Sales
(28
)
 
(35
)
 
(55
)
 
(69
)
SALES
$
908

 
$
1,160

 
$
1,799

 
$
2,319

SEGMENT EBITDA:
 
 
 
 
 
 
 
Commercial Truck & Industrial
$
37

 
$
75

 
$
71

 
$
136

Aftermarket & Trailer
22

 
24

 
35

 
41

SEGMENT EBITDA
59

 
99

 
106

 
177

Unallocated legacy and corporate costs, net (1)
(1
)
 
(4
)
 
(2
)
 
(3
)
ADJUSTED EBITDA
58

 
95

 
104

 
174

Interest expense, net
(25
)
 
(23
)
 
(54
)
 
(47
)
Provision for income taxes
(7
)
 
(17
)
 
(17
)
 
(37
)
Depreciation and amortization
(17
)
 
(16
)
 
(33
)
 
(33
)
Restructuring costs
(11
)
 
(3
)
 
(17
)
 
(27
)
Loss on sale of receivables
(2
)
 
(3
)
 
(3
)
 
(6
)
Noncontrolling interests
—

 
(4
)
 
—

 
(8
)
INCOME (LOSS) FROM CONTINUING OPERATIONS, attributable to Meritor, Inc.
$
(4
)
 
$
29

 
$
(20
)
 
$
16

LOSS FROM DISCONTINUED OPERATIONS, net of tax, attributable to Meritor, Inc.
—

 
(9
)
 
(5
)
 
(18
)
NET INCOME (LOSS) attributable to Meritor, Inc.
$
(4
)
 
$
20

 
$
(25
)
 
$
(2
)
DILUTED INCOME (LOSS) PER SHARE Attributable to Meritor, Inc.
 
 
 
 
 
 
 
Continuing operations
$
(0.04
)
 
$
0.30

 
$
(0.20
)
 
$
0.17

Discontinued operations
—

 
(0.09
)
 
(0.05
)
 
(0.19
)
Diluted income (loss) per share
$
(0.04
)
 
$
0.21

 
$
(0.25
)
 
$
(0.02
)
DILUTED AVERAGE COMMON SHARES OUTSTANDING
97.2

 
97.2

 
96.9

 
97.2

(1)
Unallocated legacy and corporate costs represent items that are not directly related to our business segments and include pension and retiree medical costs associated with sold businesses and other legacy costs for environmental and product liability matters.




43

MERITOR, INC.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
   Sales
The following table reflects total company and business segment sales for the three months ended March 31, 2013 and 2012. The reconciliation is intended to reflect the trend in business segment sales and to illustrate the impact that changes in foreign currency exchange rates, volumes and other factors had on sales. Business segment sales include intersegment sales (in millions).
 
Three Months Ended
 
 
 
 
 
Dollar Change Due To
 
March 31,
 
Dollar
 
%
 
 
 
Volume /
 
2013
 
2012
 
Change
 
Change
 
Currency
 
Other
Sales:
 
 
 
 
 
 
 
 
 
 
 
Commercial Truck & Industrial
$
712

 
$
952

 
$
(240
)
 
(25
)%
 
$
(16
)
 
$
(224
)
Aftermarket & Trailer
224

 
243

 
(19
)
 
(8
)%
 
—

 
(19
)
Intersegment Sales
(28
)
 
(35
)
 
7

 
(20
)%
 
—

 
7

TOTAL SALES
$
908

 
$
1,160

 
$
(252
)
 
(22
)%
 
$
(16
)
 
$
(236
)
     Commercial Truck & Industrial sales were $712 million in the second quarter of fiscal year 2013, down 25 percent compared to the second quarter of fiscal year 2012, reflecting lower production volumes in all geographies except South America. North American industry-wide production volumes for heavy-duty trucks decreased 28 percent in the second quarter of fiscal year 2013 as compared to the same period a year ago. In addition, we experienced lower sales in Europe as industry-wide production volumes were down 14 percent. Also, the step-down in production in our China off-highway business unfavorably impacted sales. Furthermore, the effects of foreign currency exchange rates decreased sales by $16 million compared to the same period a year ago as the U.S. dollar strengthened against other currencies compared to the prior year. The decline in sales was slightly offset by higher sales in South America as industry-wide production increased by 19 percent in the second quarter of fiscal year 2013 as compared to the prior year.
     Aftermarket & Trailer sales were $224 million in the second quarter of fiscal year 2013, down from $243 million in the second quarter of fiscal year 2012. The decrease in sales is primarily due to lower sales of core aftermarket replacement products, primarily in North America.
Cost of Sales and Gross Profit
     Cost of sales primarily represents materials, labor and overhead production costs associated with the company’s products and production facilities. Cost of sales for the three months ended March 31, 2013 was $813 million compared to $1,026 million in the prior year, representing a decrease of 21 percent. The decrease in costs of sales is primarily due to lower sales, which decreased by 22 percent. Total cost of sales was approximately 90 percent and 88 percent of sales for the three month periods ended March 31, 2013 and 2012, respectively.
     The following table summarizes significant factors contributing to the changes in costs of sales during the second quarter of fiscal year 2013 compared to the same quarter in the prior year (in millions):
 
Cost of Sales
Quarter ended March 31, 2012
$
1,026

Volume, mix and other, net
(200
)
Foreign exchange
(13
)
Quarter ended March 31, 2013
$
813


     Changes in the components of cost of sales year over year are summarized as follows (in millions):
Lower material costs
$
(191
)
Lower labor and overhead costs
(24
)
Other, net
2

Total decrease in costs of sales
$
(213
)

44

MERITOR, INC.

Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and purchased components. Material costs for the three months ended March 31, 2013 decreased by approximately $191 million compared to the same period last year primarily as a result of lower sales. In addition, global steel prices were lower in the second quarter of fiscal year 2013 as compared to the second quarter of fiscal year 2012.
     Labor and overhead costs decreased by $24 million compared to the same period in the prior year. The decrease was primarily due to lower sales in the second quarter of fiscal year 2013. In addition, savings associated with the rationalization of our European manufacturing operations, including the sale of our facility in France in fiscal year 2012, as well as continuous improvement initiatives contributed to the decrease in labor and overhead costs.
     Gross profit for the three months ended March 31, 2013 was $95 million compared to $134 million in the same period last year. Gross profit, as a percentage of sales, for the quarter ended March 31, 2013 was 10.5 percent compared to 11.6 percent for the three months ended March 31, 2012.
Other Income Statement Items
     Selling, general and administrative expenses for the three months ended March 31, 2013 and 2012 are summarized as follows (in millions):
 
Three Months Ended
 
Three Months Ended
 
 
 
 
 
March 31, 2013
 
March 31, 2012
 
Increase (Decrease)
SG&A
Amount
 
% of sales
 
Amount
 
% of sales
 
 
 
 
Loss on sale of receivables
$
(2
)
 
(0.2
)%
 
$
(3
)
 
(0.3
)%
 
$
(1
)
 
(0.1)pts
Short- and long-term variable
 
 
 
 
 
 
 
 
 
 
 
compensation
(6
)
 
(0.7
)%
 
(4
)
 
(0.3
)%
 
2

 
0.4pts
Charge for legal contingency
—

 
—
 %
 
(5
)
 
(0.4
)%
 
(5
)
 
(0.4)pts
All other SG&A
(57
)
 
(6.3
)%
 
(60
)
 
(5.2
)%
 
(3
)
 
1.1pts
Total SG&A
$
(65
)
 
(7.2
)%
 
$
(72
)
 
(6.2
)%
 
$
(7
)
 
1.0pts
    All other SG&A represents normal selling, general and administrative expense and declined approximately 5 percent year over year. The increase in all other SG&A as a percentage of sales compared to the second quarter of fiscal year 2012 was due to lower sales in the current year.
     Restructuring costs of $11 million were recorded during the quarter ended March 31, 2013 compared to $3 million a year ago. Our Commercial Truck & Industrial segment recognized $7 million of restructuring costs in the second quarter of fiscal year 2013 primarily related to employee severance costs related to our segment reorganization. Our Aftermarket & Trailer segment recognized $1 million of restructuring costs in the second quarter of fiscal year 2013 primarily related to employee severance costs. In addition, we recognized $3 million of restructuring costs at our corporate locations associated with our segment reorganization.
During the second quarter of fiscal year 2012, we approved a European headcount reduction plan in response to ongoing economic weakness and uncertainty in the European region and recognized approximately $1 million of restructuring costs. The remaining restructuring costs incurred during the second quarter of fiscal year 2012 were primarily related to residual costs associated with the sale of the St. Priest, France manufacturing facility.
     Operating income for the second quarter of fiscal year 2013 was $18 million , compared to $58 million in the prior year. Key items impacting operating income are discussed above.
     Equity in earnings of affiliates was $10 million in the second quarter of fiscal year 2013, compared to $14 million in the same period in the prior year. The decrease is primarily due to lower earnings from our affiliates in North America and India reflecting weaker truck markets in those regions offset by higher earnings from our affiliate in Brazil.
     Interest expense, net for the second quarter of fiscal year 2013 was $25 million , compared to $23 million in the prior year. The increase is primarily related to interest expense associated with the $100 million term loan entered into in April 2012 and interest on the 7.875% convertible notes issued in December 2012, offset by interest savings on the 4.625% convertible notes due 2026 and acquired in December 2012 coupled with the maturity of our 8.75% notes due March 2012.
     Provision for income taxes was $7 million in the second quarter of fiscal year 2013 compared to $17 million in the second quarter of fiscal year 2012. The reduction to tax expense for the three months ended March 31, 2013 was primarily attributable to lower earnings in jurisdictions in which we recognize tax expense.

45

MERITOR, INC.

Loss from continuing operations (before noncontrolling interests) for the second quarter of fiscal year 2013 was $4 million , compared to income of $33 million , in the prior year. The reasons for the deterioration are discussed above.
      Loss from discontinued operations was $9 million in the second quarter of fiscal year 2012. Loss from discontinued operations for the three months ended March 31, 2012 primarily relates to changes in estimates and adjustments related to certain assets and liabilities retained from previously divested businesses and indemnities provided at the time of sale of sale.
     Net loss attributable to Meritor, Inc. was $4 million for the second quarter of fiscal year 2013 compared to income of $20 million in the second quarter of fiscal year 2012. Various factors impacting the net loss are previously discussed.
Segment EBITDA and EBITDA Margins
Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated joint ventures, loss on sale of receivables, restructuring expense and asset impairment charges. We use Segment EBITDA as the primary basis for the Chief Operating Decision Maker (CODM) to evaluate the performance of each of our reportable segments. On November 12, 2012, the company announced a revised management reporting structure resulting in two business segments. Prior period segment financial information has been recast to reflect the revised reporting structure.
     The following table reflects Segment EBITDA and Segment EBITDA margins for the three months ended March 31, 2013 and 2012 (dollars in millions).
 
Segment EBITDA
 
Segment EBITDA Margins
 
March 31,
 
 
 
March 31,
 
 
 
2013
 
2012
 
$ Change
 
2013
 
2012
 
Change
Commercial Truck & Industrial
$
37

 
$
75

 
$
(38
)
 
5.2
%
 
7.9
%
 
(2.7)pts
Aftermarket & Trailer
22

 
24

 
(2
)
 
9.8
%
 
9.9
%
 
(0.1)pts
Segment EBITDA
$
59

 
$
99

 
$
(40
)
 
6.5
%
 
8.5
%
 
(2.0)pts

     Significant items impacting year-over-year Segment EBITDA include the following:
 
Commercial
Truck & Industrial
 
Aftermarket
& Trailer
 
TOTAL
Segment EBITDA– Quarter ended March 31, 2012
$
75

 
$
24

 
$
99

Lower earnings from unconsolidated affiliates
(4
)
 
—

 
(4
)
Lower (higher) pension and retiree medical costs
(1
)
 
1

 
—

Foreign exchange - transaction and translation
(3
)
 
1

 
(2
)
Volume, mix, pricing and other, net
(30
)
 
(4
)
 
(34
)
Segment EBITDA – Quarter ended March 31, 2013
$
37

 
$
22

 
$
59



Commercial Truck & Industrial Segment EBITDA was $37 million in the second quarter of fiscal year 2013, down $38 million compared to the same period in the prior year. Segment EBITDA margin decreased to 5.2 percent compared to 7.9 percent in the prior year. The decrease in Segment EBITDA margin reflects lower commercial vehicle production volumes and the corresponding lower earnings from our unconsolidated joint ventures as compared to the same period a year ago. In addition, Segment EBITDA was unfavorably impacted by foreign currency movements, primarily due to the depreciation in Brazilian real compared to the U.S. dollar.
      Aftermarket & Trailer Segment EBITDA was $22 million in the second quarter of fiscal year 2013, down $2 million compared to the same period in the prior year. The decrease in Segment EBITDA is due to lower sales from our core aftermarket products in all regions.

46

MERITOR, INC.


Six Months Ended March 31, 2013 Compared to Six Months Ended March 31, 2012
   Sales
The following table reflects total company and business segment sales for the six months ended March 31, 2013 and 2012. The reconciliation is intended to reflect the trend in business segment sales and to illustrate the impact that changes in foreign currency exchange rates, volumes and other factors had on sales. Business segment sales include intersegment sales (in millions).
 
Six Months Ended
 
 
 
 
 
Dollar Change Due To
 
March 31,
 
Dollar
 
%
 
 
 
Volume /
 
2013
 
2012
 
Change
 
Change
 
Currency
 
Other
Sales:
 
 
 
 
 
 
 
 
 
 
 
Commercial Truck & Industrial
$
1,427

 
$
1,927

 
$
(500
)
 
(26
)%
 
$
(29
)
 
$
(471
)
Aftermarket & Trailer
427

 
461

 
(34
)
 
(7
)%
 
—

 
(34
)
Intersegment Sales
(55
)
 
(69
)
 
14

 
(20
)%
 
—

 
14

TOTAL SALES
$
1,799

 
$
2,319

 
$
(520
)
 
(22
)%
 
$
(29
)
 
$
(491
)
     Commercial Truck & Industrial sales were $1,427 million in the first six months of fiscal year 2013, down 26 percent compared to the first six months of fiscal year 2012, reflecting lower commercial truck production globally. North American industry-wide production volumes for heavy-duty trucks decreased 25 percent in the first half of fiscal year 2013 as compared to the same period a year ago. In addition, we experienced lower sales in South America and Europe as industry-wide production volumes in these regions were down 23 percent and 14 percent, respectively. Also, the step-down in production in our China off-highway business unfavorably impacted sales. Furthermore, the effects of foreign currency exchange rates decreased sales by $29 million compared to the same period a year ago as the U.S. dollar strengthened against other currencies compared to the prior year.
     Aftermarket & Trailer sales were $427 million in the first six months of fiscal year 2013, down from $461 million in the first six months of fiscal year 2012. The decrease in sales is primarily due to lower sales of core aftermarket replacement products, primarily in North America, and products for trailer applications.
Cost of Sales and Gross Profit
     Cost of sales primarily represents materials, labor and overhead production costs associated with the company’s products and production facilities. Cost of sales for the six months ended March 31, 2013 was $1,621 million compared to $2,079 million in the prior year, representing a decrease of 22 percent. The decrease in costs of sales is primarily due to lower sales volumes which is discussed above. Total cost of sales was approximately 90 percent of sales for the six month periods ended March 31, 2013 and 2012.
     The following table summarizes significant factors contributing to the changes in costs of sales during the first six months of fiscal year 2013 compared to the same period in the prior year (in millions):
 
Cost of Sales
Six months ended March 31, 2012
$
2,079

Volume, mix and other, net
(429
)
Foreign exchange
(29
)
Six months ended March 31, 2013
$
1,621


     Changes in the components of cost of sales year over year are summarized as follows (in millions):
Lower material costs
$
(391
)
Lower labor and overhead costs
(70
)
Other, net
3

Total decrease in costs of sales
$
(458
)

47

MERITOR, INC.

Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and purchased components. Material costs for the six months ended March 31, 2013 decreased by approximately $391 million compared to the same period last year primarily as a result of lower sales. In addition, global steel prices were lower in the first six months of fiscal year 2013 as compared to the first six months of fiscal year 2012.
     Labor and overhead costs decreased by $70 million compared to the same period in the prior year. The decrease was primarily due to lower sales in the first six months of fiscal year 2013. In addition, savings associated with the variable labor cost reductions as part of our continuous improvement initiatives.
     Gross profit for the six months ended March 31, 2013 was $178 million compared to $240 million in the same period last year. Gross profit, as a percentage of sales, was 10 percent for the six months ended March 31, 2013 and 2012.
Other Income Statement Items
     Selling, general and administrative expenses for the six months ended March 31, 2013 and 2012 are summarized as follows (in millions):
 
Six Months Ended
 
Six Months Ended
 
 
 
 
 
March 31, 2013
 
March 31, 2012
 
Increase (Decrease)
SG&A
Amount
 
% of sales
 
Amount
 
% of sales
 
 
 
 
Loss on sale of receivables
$
(3
)
 
(0.2
)%
 
$
(6
)
 
(0.3
)%
 
$
(3
)
 
(0.1)pts
Short- and long-term variable
 
 
 
 
 
 
 
 
 
 
 
compensation
(11
)
 
(0.6
)%
 
(9
)
 
(0.4
)%
 
2

 
0.2pts
Charge for legal contingency
—

 
—
 %
 
(5
)
 
(0.2
)%
 
(5
)
 
(0.2)pts
All other SG&A
(113
)
 
(6.3
)%
 
(117
)
 
(5.0
)%
 
(4
)
 
1.3pts
Total SG&A
$
(127
)
 
(7.1
)%
 
$
(137
)
 
(5.9
)%
 
$
(10
)
 
1.2pts
    All other SG&A represents normal selling, general and administrative expense and declined approximately 3 percent year over year. The increase in total SG&A as a percentage of sales compared to the second quarter of fiscal year 2012 was due to lower sales in the current year.
     Restructuring costs of $17 million were recorded during the six months ended March 31, 2013 compared to $27 million a year ago. Our Commercial Truck & Industrial segment recognized $9 million of restructuring costs in the first six months of fiscal year 2013 primarily related to employee severance costs. Our Aftermarket & Trailer segment recognized $5 million of restructuring cost during the first six months of fiscal year 2013 primarily related to the remanufacturing consolidation program. In addition, we recognized $3 million of restructuring costs at our corporate locations associated with our segment reorganization.
Restructuring costs in the first six months of fiscal year 2012 include $24 million recognized in our Commercial Truck & Industrial segment in connection with the January 2012 sale our of our St. Priest, France manufacturing facility to Renault Truck SAS. These costs include non-cash charges of $19 million, of which $17 million relates to impairments for assets held for sale at December 31, 2011. In addition, we recognized $5 million (including $4 million recognized in the first quarter of fiscal year 2012) of costs associated with employee headcount reductions and facility rationalization actions.
     Operating income for the first six months of fiscal year 2013 was $32 million , compared to $74 million in the prior year. Key items impacting operating income are discussed above.
     Equity in earnings of affiliates was $19 million in the first six months of fiscal year 2013, compared to $29 million in the same period in the prior year. The decrease is primarily due to lower earnings from our affiliates in North and South America reflecting weaker truck markets in those regions.
     Interest expense, net for the first six months of fiscal year 2013 was $54 million , compared to $47 million in the prior year. During the first quarter ended December 31, 2012, the company repurchased approximately $245 million of $300 million principal amount of the 4.625% convertible notes due 2026. We recognized a $5 million loss on debt extinguishment associated with the repurchase.
     Provision for income taxes was $17 million in the first six months of fiscal year 2013 compared to $37 million in the first six months of fiscal year 2012. The reduction to tax expense for the six months ended March 31, 2013 was primarily attributable to lower earnings in jurisdictions in which we recognize tax expense.

48

MERITOR, INC.

Loss from continuing operations (before noncontrolling interests) for the first six months of fiscal year 2013 was $20 million , compared to income of $24 million , in the prior year. The reasons for the deterioration are discussed above.
      Loss from discontinued operations was $5 million in the first six months of fiscal year 2013, compared to $18 million in the same period in the prior year. Loss from discontinued operations for the six months ended March 31, 2013 and 2012 primarily relates to changes in estimates and adjustments related to certain assets and liabilities retained from previously divested businesses and indemnities provided at the time of sale of sale.
     Net loss attributable to Meritor, Inc. was $25 million for the first six months of fiscal year 2013 compared to loss of $2 million in the first six months of fiscal year 2012. Various factors impacting the net loss are previously discussed.
Segment EBITDA and EBITDA Margins
Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated joint ventures, loss on sale of receivables, restructuring expense and asset impairment charges. We use Segment EBITDA as the primary basis for the Chief Operating Decision Maker (CODM) to evaluate the performance of each of our reportable segments. On November 12, 2012, the company announced a revised management reporting structure resulting in two business segments. Prior period segment financial information has been recast to reflect the revised reporting structure.
     The following table reflects Segment EBITDA and Segment EBITDA margins for the six months ended March 31, 2013 and 2012 (dollars in millions).
 
Segment EBITDA
 
Segment EBITDA Margins
 
March 31,
 
 
 
March 31,
 
 
 
2013
 
2012
 
$ Change
 
2013
 
2012
 
Change
Commercial Truck & Industrial
$
71

 
$
136

 
$
(65
)
 
5.0
%
 
7.1
%
 
(2.1)pts
Aftermarket & Trailer
35

 
41

 
(6
)
 
8.2
%
 
8.9
%
 
(0.7)pts
Segment EBITDA
$
106

 
$
177

 
$
(71
)
 
5.9
%
 
7.6
%
 
(1.7)pts

     Significant items impacting year-over-year Segment EBITDA include the following:
 
Commercial
Truck & Industrial
 
Aftermarket
& Trailer
 
TOTAL
Segment EBITDA– Six months ended March 31, 2012
$
136

 
$
41

 
$
177

Lower earnings from unconsolidated affiliates
(9
)
 
(1
)
 
(10
)
Lower pension and retiree medical costs
1

 
1

 
2

Foreign exchange - transaction and translation
(10
)
 
—

 
(10
)
Volume, mix, pricing and other, net
(47
)
 
(6
)
 
(53
)
Segment EBITDA – Six months ended March 31, 2013
$
71

 
$
35

 
$
106



Commercial Truck & Industrial Segment EBITDA was $71 million in the first six months of fiscal year 2013, down $65 million compared to the same period in the prior year. Segment EBITDA margin decreased to 5.0 percent compared to 7.1 percent in the prior year. The decrease in Segment EBITDA margin reflects lower commercial vehicle production volumes in all regions and lower earnings from our unconsolidated joint ventures as compared to the same period a year ago. In addition, Segment EBITDA was unfavorably impacted by foreign currency movements, primarily due to the depreciation in Brazilian real compared to the U.S. dollar.
      Aftermarket & Trailer Segment EBITDA was $35 million in the first six months of fiscal year 2013, down $6 million compared to the same period in the prior year. The decrease in Segment EBITDA is due to lower sales from our core aftermarket products in all regions and lower earnings from our unconsolidated trailer joint venture in Brazil.

49

MERITOR, INC.

Financial Condition
Cash Flows (in millions)
 
Six Months Ended March 31,
 
2013
 
2012
OPERATING CASH FLOWS
 
 
 
Income (loss) from continuing operations
$
(20
)
 
$
24

Depreciation and amortization
33

 
33

Restructuring costs
17

 
27

Loss on debt extinguishment
5

 
—

Equity in earnings of affiliates
(19
)
 
(29
)
Pension and retiree medical expense
22

 
26

Dividends received from equity method investments
7

 
8

Pension and retiree medical contributions
(48
)
 
(50
)
Restructuring payments
(12
)
 
(10
)
Decrease in working capital
(32
)
 
(74
)
Changes in off-balance sheet accounts receivable factoring
(44
)
 
8

Other, net
(5
)
 
(1
)
Cash flows used for continuing operations
(96
)
 
(38
)
Cash flows used for discontinued operations
(13
)
 
(8
)
CASH USED FOR OPERATING ACTIVITIES
$
(109
)
 
$
(46
)
     Cash used by operating activities for the first six months of fiscal year 2013 was $109 million , compared to $46 million in the same period of fiscal year 2012. The cash outflow in continuing operations was primarily due to lower factoring of our receivables.
 
Six Months Ended March 31,
 
2013
 
2012
INVESTING CASH FLOWS
 
 
 
Capital expenditures
$
(23
)
 
$
(43
)
Proceeds from sale of property
—

 
18

Other investing activities
—

 
(2
)
Net investing cash flows provided by discontinued operations
6

 
28

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
$
(17
)
 
$
1

     Cash used for investing activities was $17 million in the first six months of fiscal year 2013 compared to cash provided by investing activities of $1 million in the same period a year ago. Net investing cash flows provided by discontinued operations for the six months ended March 31, 2013 includes approximately $3 million of proceeds from the sale of property from our divested Light Vehicle Systems business group. In addition, we received $3 million for the second installment on the note receivable, which was issued at the time of sale of our Body Systems business.
Proceeds from sale of property in the second half of 2012 are related to the sale of excess land at our Commercial Truck & Industrial facility at Cwmbran, Wales. Investing cash flows provided by discontinued operations in the first six months of fiscal year 2012 include $27 million of cash received from the purchaser of our Body Systems business.


50

MERITOR, INC.

 
Six Months Ended March 31,
 
2013
 
2012
FINANCING CASH FLOWS
 
 
 
Borrowing on accounts receivable securitization program, net
—

 
19

Repayment of notes and term loan
(236
)
 
(84
)
Proceeds from debt issuance
225

 
—

Debt issuance costs
(6
)
 
—

Other financing activities
2

 
—

CASH USED BY FINANCING ACTIVITIES
$
(15
)
 
$
(65
)
     Cash used for financing activities was $15 million for the first six months of fiscal year 2013 compared to $65 million for the first six months of fiscal year 2012. In December 2012, we issued $250 million of 7.875 percent convertible senior notes due 2026. Net proceeds from the issuance of these notes were used along with available cash to retire a portion of our outstanding 4.625 percent convertible senior notes due 2026. We incurred $6 million of issuance costs related to these transactions.
In the second quarter of fiscal year 2012, we retired the remaining $84 million of outstanding 8-3/4 percent notes due 2012 at par value. We borrowed $19 million on our on-balance sheet accounts receivable securitization program in the U.S.
Liquidity
Our outstanding debt, net of discounts where applicable, is summarized as follows (in millions).
 
March 31,
 
September 30,
 
2013
 
2012
Fixed-rate debt securities
$
497

 
$
497

Fixed-rate convertible notes
480

 
500

Term loan
95

 
98

Lines of credit and other
20

 
13

Unamortized gain on interest rate swap termination
9

 
10

Unamortized discount on convertible notes
(46
)
 
(58
)
Total debt
$
1,055

 
$
1,060

     Overview – Our principal operating and capital requirements are for working capital needs, capital expenditure requirements, debt service requirements, funding of pension and retiree medical costs, restructuring and product development programs. We expect fiscal year 2013 capital expenditures for our business segments to be in the range of $65 million to $75 million.
     We generally fund our operating and capital needs with cash on hand, cash flow from operations, our various accounts receivable securitization and factoring arrangements and availability under our revolving credit facility. Cash in excess of local operating needs is generally used to reduce amounts outstanding, if any, under our revolving credit facility or U.S. accounts receivable securitization program. Our ability to access additional capital in the long term will depend on availability of capital markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. We continuously evaluate our capital structure to ensure the most appropriate and optimal structure and may, from time to time, retire, repurchase, exchange or redeem outstanding indebtedness, issue new equity or debt securities or enter into new lending arrangements if conditions warrant.
     In February 2012, we filed a shelf registration statement with the Securities and Exchange Commission, which was amended in November 2012, registering up to $750 million of debt and/or equity securities that may be offer in one or more series on terms to be determined at the time of sale.
     We believe our current financing arrangements provide us with the financial flexibility required to maintain our operations and fund future growth, including actions required to improve our market share and further diversify our global operations, through the term of our revolving credit facility, which matures in April 2017 but is subject to a springing maturity in June 2015 under certain circumstances.

51

MERITOR, INC.

     Sources of liquidity as of March 31, 2013, in addition to cash on hand, are as follows:
 
Total Facility
Size
 
Unused as of
3/31/13
 
Current Expiration
On-balance sheet arrangements:
 
 
 
 
 
Revolving credit facility (1)
$
429

 
$
429

 
April 2017 (1)
Committed U.S. accounts receivable securitization (2)
100

 
100

 
June 2015
Total on-balance sheet arrangements
529

 
529

 
 
Off-balance sheet arrangements: (2)  
 
 
 
 
 
Swedish Factoring Facility
192

 
59

 
June 2013
U.S. Factoring Facility
83

 
32

 
October 2013
U.K. Factoring Facility
32

 
24

 
February 2018
Italy Factoring Facility
38

 
27

 
June 2017
Other uncommitted factoring facilities
26

 
16

 
Various
Letter of credit facility
30

 
3

 
November 2015
Total off-balance sheet arrangements
401

 
161

 
 
Total available sources
$
930

 
$
690

 
 

(1)
The availability under the revolving credit facility is subject to a collateral test as discussed under “Revolving Credit Facility” below. On April 23, 2012, we entered into an agreement to amend and extend the revolving credit facility through April 2017 (with a springing maturity date of 2015 under certain circumstances). See further discussion below under “Revolving Credit Facility”.
(2)
Availability subject to adequate eligible accounts receivable available for sale.
Cash and Liquidity Needs – Our cash and liquidity needs have been impacted by the level, variability and timing of our customers’ worldwide vehicle production and other factors outside of our control. At March 31, 2013, we had $117 million in cash and cash equivalents.
     Our availability under the revolving credit facility is subject to a collateral test and a priority debt to EBITDA ratio covenant, as defined in the agreement, which may limit our borrowings under the agreement as of each quarter end. As long as we are in compliance with this covenant as of the quarter end, we have full availability under the revolving credit facility every other day during the quarter. Our future liquidity is subject to a number of factors, including access to adequate funding under our revolving credit facility, vehicle production schedules and customer demand and access to other borrowing arrangements such as factoring or securitization facilities. Even taking into account these and other factors, management expects to have sufficient liquidity to fund our operating requirements through the term of our revolving credit facility.
Debt Repurchase Program – On April 26, 2012, our Board of Directors approved a repurchase program for up to $150 million of any of our public debt securities (including without limitation convertible debt securities) from time to time through open market purchases or privately negotiated transactions or otherwise, subject to necessary approvals, including further approval by a specified committee of the Board. Such committee of the Board approved repurchases of up to $50 million under this program from time to time, initially through December 15, 2012, which was renewed to extend through December 15, 2013.
Revolving Credit Facility – At March 31, 2012, we had a revolving credit facility of $441 million which was slated to mature in January 2014. The availability under this facility was dependent upon various factors, including principally performance against certain financial covenants. The $441 million revolving credit facility included $100 million of availability for the issuance of letters of credit.
On April 23, 2012, we amended and restated our revolving credit facility. Pursuant to the revolving credit facility agreement as amended, we have a $429 million revolving credit facility, $14 million of which matures in January 2014 for a bank not electing to extend its commitments under the revolving credit facility existing at March 31, 2012 and the remaining $415 million of which matures in April 2017. The April 2017 maturity date is also subject to the following springing maturity condition: if on June 1, 2015, the outstanding principal amount of our $250 million bonds due 2015 is greater than $100 million, the maturity date becomes June 10, 2015. The availability under this facility is dependent upon various factors, including principally performance against certain financial covenants.

52

MERITOR, INC.

No borrowings were outstanding under the revolving credit facility at March 31, 2013 and September 30, 2012. The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit. No letters of credit were outstanding on March 31, 2013. At September 30, 2012, $1 million of letters of credit were outstanding under the revolving credit facility. At certain times during any given month, we could draw on our revolving credit facility to fund intra-month working capital needs. In such months, we would then typically utilize the cash we receive from our customers throughout the month to repay borrowing under the facility. Accordingly, during any given month, we may draw down on this facility in amounts exceeding the amounts shown as outstanding at fiscal quarter ends.
  The availability under the revolving credit facility is subject to certain financial covenants based on (i) the ratio of our priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA and (ii) the amount of annual capital expenditures. We are required to maintain a total priority-debt-to-EBITDA ratio, as defined in the agreement, of (i) 2.50 to 1.00 as of the last day of the fiscal quarter commencing with the fiscal quarter ending on or about March 31, 2012 through and including the fiscal quarter ending on or about September 30, 2012, (ii) 2.25 to 1.00 as of the last day of each fiscal quarter commencing with the fiscal quarter ending on or about December 31, 2012 through and including the fiscal quarter ending on or about September 30, 2013, and (iii) 2.00 to 1.00 as of the last day of each fiscal quarter thereafter. At March 31, 2013, we were in compliance with all covenants under our credit agreement with a ratio of approximately 0.61 x for the priority debt-to-EBITDA covenant.
     Availability under the amended and extended revolving credit facility is also subject to a collateral test, pursuant to which borrowings on the revolving credit facility cannot exceed 1.0x the collateral test value. The collateral test is performed on a quarterly basis. At March 31, 2013, the revolving credit facility was collateralized by approximately $589 million of the company's assets, primarily consisting of eligible domestic U.S. accounts receivable, inventory, plant, property and equipment, intellectual property and the company's investment in all or a portion of certain of its wholly-owned subsidiaries.
Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin, and a commitment fee on undrawn amounts, both of which are based upon our current corporate credit rating for the senior secured facilities. At March 31, 2013, the margin over LIBOR rate was 425 basis points and the commitment fee was 50 basis points. Although a majority of our revolving credit loans are LIBOR based, overnight revolving credit loans are at the prime rate plus a margin of 325 basis points.
Certain of the company's subsidiaries, as defined in the credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly-held notes outstanding under the company's indentures and the convertible notes issued in December 2012 (see Note 24 to the consolidated financial statements).
Term Loan – As part of the amendment and restatement of our revolving credit facility, on April 23, 2012, we also entered into a $100 million term loan agreement with a maturity date of April 23, 2017. The maturity date of April 23, 2017 is also subject to the springing maturity condition discussed under "Revolving Credit Facility" above. The term loan will amortize over a period of 5 years from the effective date as follows: $5 million principal to be repaid during year one; $10 million principal to be repaid in each of the years two, three and four; and the remaining principal balance to be paid in year five. Payments will be made on a quarterly basis for the duration of the term loan. At March 31, 2013, the margin over LIBOR rate was 425 basis points. We have the ability to prepay the term loan at any time without penalty or premium. At March 31, 2013, the outstanding balance of the term loan was $95 million.
Convertible Notes – In December 2012, we issued $250 million of 7.875 percent convertible senior unsecured notes due 2026 (the “Notes”) and used the proceeds thereof primarily to repurchase outstanding notes. See “Overview” above. The Notes were sold by us to qualified institutional buyers in a private placement exempt from the registration requirements of the Securities Act of 1933. The Notes have an initial principal amount of $900 per note and will accrete to $1,000 per note on December 1, 2020. Net proceeds received, after issuance costs and discounts, were approximately $220 million.
We will pay 7.875 percent cash interest on the principal amount at maturity of the Notes semi-annually in arrears on June 1 and December 1 of each year to holders of record at the close of business on the preceding May 15 and November 15, respectively, and at maturity to the holders that present the Notes for payment. Interest will accrue on the principal amount at maturity thereof from and including the date the Notes are issued or from, and including, the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date. Cash interest at a rate of 7.875 percent per annum on the principal amount at maturity of the convertible notes from the date of issuance through maturity is payable semi-annually in arrears on June 1 and December 1 of each year.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of our subsidiaries. The Notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future senior unsecured indebtedness and junior to any of our existing and future secured indebtedness.

53

MERITOR, INC.

The Notes will be convertible in certain circumstances into cash up to the principal amount at maturity of the Note surrendered for conversion and, if applicable, shares of the company's common stock (subject to a conversion share cap as described below), based on an initial conversion rate, subject to adjustment, equivalent to 83.3333 shares per $1,000 principal amount at maturity of Notes (which represents an initial conversion price of $12.00 per share), only under the following circumstances:
(1) Prior to June 1, 2025, during any calendar quarter after the calendar quarter ending December 31, 2012, if the closing sale price of the company's common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter;
(2) Prior to June 1, 2025, during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount at maturity of Notes was equal to or less than 97% of the conversion value of the Notes on each trading day during such five consecutive trading day period;
(3) Prior to June 1, 2025, if the company has called the Notes for redemption;
(4) Prior to June 1, 2025, upon the occurrence of specified corporate transactions; or
(5) At any time on or after June 1, 2025.
On or after December 1, 2020, the company may redeem the Notes at its option, in whole or in part, at a redemption price in cash equal to 100% of the principal amount at maturity of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Further, holders may require the company to purchase all or a portion of their Notes at a purchase price in cash equal to 100% of the principal amount at maturity of the Notes to be purchased, plus accrued and unpaid interest, on December 1, 2020 or upon certain fundamental changes.
U.S. Securitization Program – We have a $100 million U.S. accounts receivables securitization facility, which expires on June 18, 2015. This program is provided by PNC Bank, National Association (PNC), as Administrator, Market Street Funding, LLC, and the other Purchasers and Purchaser Agents from time to time (participating lenders), which are party to the agreement. Under this program, we have the ability to sell an undivided percentage ownership interest in substantially all of our trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. Factoring Facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit issued for our U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the consolidated balance sheet. At both March 31, 2013 and September 30, 2012, no amounts, including letters of credit, were outstanding under this program. This program contains a financial covenant related to our priority-debt-to-EBITDA ratio, which is identical to the corresponding covenant in our revolving credit facility as it exists on the date of the agreement. In addition, this securitization program contains a cross default to our revolving credit facility. At certain times during any given month, we may sell eligible accounts receivable under this program to fund intra-month working capital needs. In such months, we would then typically utilize the cash we receive from our customers throughout the month to repay the borrowings under the program. Accordingly, during any given month, we may borrow under this program in amounts exceeding the amounts shown as outstanding at fiscal quarter ends.
        Capital Leases – On March 20, 2012, we entered into an arrangement to finance equipment acquisitions at our various U.S. locations. Under this arrangement, we can request financing from GE Capital Commercial, Inc. (GE Capital) for progress payments for equipment under construction, not to exceed $10 million at any point in time. The financing rate is equal to the 30-day LIBOR plus 575 basis points per annum. Under this arrangement, we can also enter into lease arrangements with GE Capital for completed equipment. The lease term is 60 months and the lease interest rate is equal to the 5-year Swap Rate published by the Federal Reserve Board plus 564 basis points. As of March 31, 2013 and September 30, 2012, we had $12 million and $6 million, respectively, outstanding under these arrangements.
      Other – One of our consolidated joint ventures in China participates in a bills of exchange program to settle its obligations with its trade suppliers. These programs are common in China and generally require the participation of local banks. Under these programs, our joint venture issues notes payable through the participating banks to its trade suppliers. If the issued notes payable remain unpaid on their respective due dates, this could constitute an event of default under the company’s revolving credit facility if the defaulted amount were to exceed $35 million.

54

MERITOR, INC.

     Credit Ratings – At March 31, 2013, Standard & Poor’s corporate credit rating, senior secured credit rating, and senior unsecured credit rating for our company are B, BB- and B-, respectively. Moody’s Investors Service corporate credit rating, senior secured credit rating, and senior unsecured credit rating for our company are B2, Ba2 and B3, respectively. Any lowering of our credit ratings could increase our cost of future borrowings and could reduce our access to capital markets and result in lower trading prices for our securities.
Off-Balance Sheet Arrangements
     Accounts Receivable Factoring Arrangements – We participate in accounts receivable factoring programs with total amounts utilized at March 31, 2013, of approximately $213 million , of which $203 million was attributable to committed factoring facilities involving the sale of AB Volvo accounts receivables. The remaining amount of $10 million was related to factoring by certain of our European subsidiaries under uncommitted factoring facilities with financial institutions. The receivables under these programs are sold at face value and are excluded from the consolidated balance sheet. Total facility size, unused amounts and expiration dates for each of these programs are shown in the table above under "Overview."
The Swedish and U.S. factoring facilities are backed by 364 -day liquidity commitments from Nordea Bank which were renewed through October 2013. Management believes both facilities will be successfully renewed prior to maturity. The commitments under all of our factoring facilities are subject to standard terms and conditions for these types of arrangements (including, in case of the U.K. and Italy commitments, a sole discretion clause whe reby the bank retains the right to not purchase receivables, which has not been invoked since the inception of the respective programs).
Since many of our accounts receivable factoring programs support our working capital requirements in Europe, we are monitoring developments with respect to the European monetary union. If the European monetary union were to dissolve and we were unable to renegotiate our European factoring agreements it could have a material adverse effect on our liquidity.
     Letter of Credit Facilities – We entered into a five-year credit agreement dated as of November 18, 2010 with Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto and the Bank of New York Mellon, as paying agent. Under the terms of this credit agreement, as amended, we have the right to obtain the issuance, renewal, extension and increase of letters of credit up to an aggregate availability of $30 million . This facility contains covenants and events of default generally similar to those existing in our public debt indentures. At March 31, 2013 and September 30, 2012, we had $27 million and $30 million , respectively, of letters of credit outstanding under this facility. In addition, we had another $9 million and $18 million of letters of credit outstanding through other letter of credit facilities at March 31, 2013 and September 30, 2012, respectively.
Contingencies
Contingencies related to environmental, asbestos and other matters are discussed in Note 20 of the Notes to Condensed Consolidated Financial Statements.
New Accounting Pronouncements
Accounting standards implemented during fiscal year 2013
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We have adopted this guidance effective with our first quarter of fiscal year 2013 and have reported Other Comprehensive Income as a separate but consecutive statement.

55
Index


Accounting standards to be implemented
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. As such, we will adopt this guidance with our first quarter of fiscal year 2014. We do not believe the adoption will have a significant impact on our consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income be presented on the financial statements or in a note to the financial statements. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. As such, we will adopt this guidance with our first quarter of fiscal year 2014. We do not believe the adoption will have a significant impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
     We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our debt.
     As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into U.S. dollars for purposes of our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenues and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income. For the second quarters of fiscal year 2013 and 2012, our reported financial results have been adversely affected by the appreciation of the U.S. dollar against foreign currencies.
     We use foreign currency forward contracts to mitigate the earnings exposures arising from foreign currency exchange risk on foreign currency purchases and sales. Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under this cash flow hedging program, we designate the foreign currency contracts (the contracts) as cash flow hedges of underlying foreign currency forecasted purchases and sales. The effective portion of changes in the fair value of the contracts is recorded in Accumulated Other Comprehensive Loss (AOCL) in the statement of shareowners’ equity and is recognized in operating income when the underlying forecasted transaction impacts earnings. The contracts generally mature within 12 months.
     We generally have not hedged against our foreign currency exposure related to translations to U.S. dollars of our financial results denominated in foreign currencies. However, in the first quarter of fiscal year 2012, due to the volatility of the Brazilian real as compared to the U.S. dollar, we entered into foreign currency option contracts to reduce volatility in the translation of Brazilian real earnings to U.S. dollars. Gains and losses on these option contracts are recorded in other income (expense), net, in the consolidated statement of operations, generally reducing the exposure to translation volatility during a full-year period. The impact of these option contracts was not significant to our results of operations or financial position at March 31, 2012.
Interest rate risk relates to the gain/increase or loss/decrease we could incur in our debt balances and interest expense. To manage this risk, we enter into interest rate swaps from time to time to economically convert portions of our fixed-rate debt into floating rate exposure, ensuring that the sensitivity of the economic value of debt falls within our corporate risk tolerances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes. In the fourth quarter of fiscal year 2012, we entered into a four-year interest rate swap arrangement whereby we convert the variable interest rate on our term-loan expressed as LIBOR-rate into a variable interest rate based on U.S. federal funds rate. The notional amount of the arrangement is $50 million, which is approximately 50-percent of the amount outstanding under our term-loan. The arrangement does not meet the hedge accounting requirements, therefore, the mark-to-market adjustments related to the fair value of derivative are recorded as interest expense in the consolidated statement of operations.
Included below is a sensitivity analyses to measure the potential gain (loss) in the fair value of financial instruments with exposure to market risk. The model assumes a 10 percent hypothetical change (increase or decrease) in exchange rates and instantaneous, parallel shifts of 50 basis points in interest rates.

56

MERITOR, INC.

Market Risk
 
Assuming a
10% Increase
in Rates
 
Assuming a
10% Decrease
in Rates
 
Increase (Decrease) in
Foreign Currency Sensitivity:
 
 
 
 
 
Forward contracts in USD (1)
$
0.9

 
$
(0.9
)
 
Fair Value
Forward contracts in Euro (1)
(2.7
)
 
2.7

 
Fair Value
Foreign currency denominated debt
0.7

 
(0.7
)
 
Fair Value
 
Assuming a 50
BPS Increase
in Rates
 
Assuming a 50
 BPS Decrease
in Rates
 
Increase (Decrease) in
Interest Rate Sensitivity:
 
 
 
 
 
Debt - fixed rate
$
(27.7
)
 
$
29.0

 
Fair Value
Debt – variable rate (2)
(0.5
)
 
0.5

 
Cash flow

(1)
Includes only the risk related to the derivative instruments and does not include the risk related to the underlying exposure. The analysis assumes overall derivative instruments and debt levels remain unchanged for each hypothetical scenario.
At March 31, 2013 a 10% decrease in quoted currency exchange rates would result in a potential loss of approximately $1 million in foreign currency denominated debt.
At March 31, 2013 the fair value of outstanding debt was approximately $1,081 million. A 50 basis points decrease in quoted interest rates would result in an increase in the fair value of fixed rate debt by approximately $29 million.
(2)
Includes domestic and foreign debt.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), management, with the participation of the chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2013. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of March 31, 2013, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
     There have been no changes in the company’s internal control over financial reporting that occurred during the quarter ended March 31, 2013 that materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
     In connection with the rule, the company continues to review and document its disclosure controls and procedures, including the company’s internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the company’s systems evolve with the business.

57

MERITOR, INC.

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below and as set forth in this Quarterly Report under Note 20 “Contingencies”, there have been no material developments in legal proceedings involving the company or its subsidiaries since those reported in the company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2012.
On October 5, 2006, Meritor Transmission Corporation and ZF Meritor LLC, a joint venture between a Meritor, Inc. subsidiary and ZF Friedrichshafen AG, filed a lawsuit against Eaton Corporation in the United States District Court for the District of Delaware, alleging that Eaton had engaged in exclusionary, anticompetitive conduct in the markets for heavy-duty truck transmissions, in violation of the U.S. antitrust laws and seeking an injunction prohibiting Eaton from engaging in such anticompetitive conduct and monetary damages. On October 8, 2009, the jury found that Eaton engaged in conduct that violated the Sherman and Clayton antitrust acts in the sale and marketing of heavy-duty truck transmissions. On August 4, 2011, the district court awarded ZF Meritor zero damages. On September 28, 2012, the Third Circuit Court of Appeals affirmed that the trial evidence sufficiently supported the jury’s verdict, reversed the district court’s decision on damages in part, and remanded the question of damages for further proceedings. The district court denied Eaton’s request to stay the damages phase of the case pending any possible action by the Supreme Court and set May 1, 2013 as the deadline by which party motions on damages must be fully briefed for district court consideration. On February 25, 2013, Eaton petitioned the United States Supreme Court for a writ of certiorari seeking review of the Third Circuit’s judgment. The Supreme Court denied Eaton’s petition on April 29, 2013.
Item 1A. Risk Factors
     There have been no material changes in risk factors involving the company or its subsidiaries from those previously disclosed in the company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     Issuer repurchases
     The independent trustee of our 401(k) plans purchases shares in the open market to fund investments by employees in our common stock, one of the investment options available under such plans, and any matching contributions in company stock we provide under certain of such plans. In addition, our stock incentive plans permit payment of an option exercise price by means of cashless exercise through a broker and permit the satisfaction of the minimum statutory tax obligations upon exercise of options and the vesting of restricted stock units through stock withholding. However, the company does not believe such purchases or transactions are issuer repurchases for the purposes of this Item 2 of Part II of this Report on Form 10-Q. In addition, our stock incentive plans also permit the satisfaction of tax obligations upon the vesting of restricted stock through stock withholding. There were no shares withheld in the second quarter of 2013.
Item 5. Other Information
On May 1, 2013, the Company entered into employment agreements (the “New Employment Agreements”) with each of the following executive officers: Charles G. McClure; Vernon G. Baker, II; Jeffrey A. Craig; Pedro N. Ferro; Barbara G. Novak; Kevin A. Nowlan; and Larry E. Ott. The New Employment Agreements are substantially in the form of a template of executive officer employment agreement and supersede any existing employment agreements. In addition, as Mr. Nowlan only assumed his role as Chief Financial Officer in February, the New Employment Agreement with Mr. Nowlan is the first executive officer employment agreement the company has entered into with Mr. Nowlan. The New Employment Agreements do not change the level of salary, annual bonus or long term incentive targets applicable to the individual under current arrangements and primarily reflect minor non-substantive changes in the existing agreements in order to clarify certain provisions. However, the New Employment Agreements do add the following substantive provisions, which either were not in the current arrangements or were not in each officer's current arrangement: a clawback of incentive compensation under certain circumstances; certain non-compete and non-solicitation obligations following termination; and certain tax provisions. The New Employment Agreements are filed as exhibits to this Form 10-Q.

58

MERITOR, INC.

Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to failure to receive the Brazilian regulatory approvals required to complete the sale of our ownership stake in the Suspensys joint venture or to otherwise successfully complete the sale of such ownership stake; failure to consummate our debt tender offer due to financing or other conditions; reduced production for certain military programs and our ability to secure new military programs as our primary military programs wind down by design in future years; reliance on major original equipment manufacturer (“OEM”) customers and possible negative outcomes from contract negotiations with our major customers, including failure to negotiate acceptable terms in contract renewal negotiations; our ability to successfully manage rapidly changing volumes in the commercial truck markets and work with our customers to adjust their demands in view of rapid changes in production levels; global economic and market cycles and conditions; availability and sharply rising costs of raw materials, including steel, and our ability to manage or recover such costs; our ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, in the event one or more countries exit the European monetary union; risks inherent in operating abroad (including foreign currency exchange rates, implications of foreign regulations relating to pensions and potential disruption of production and supply due to terrorist attacks or acts of aggression); rising costs of pension and other postretirement benefits; the ability to achieve the expected benefits of restructuring actions; the demand for commercial and specialty vehicles for which we supply products; whether our liquidity will be affected by declining vehicle productions in the future; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; labor relations of our company, our suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of our suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of our debt; our ability to continue to comply with covenants in our financing agreements; our ability to access capital markets; credit ratings of our debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; the outcome of actual and potential product liability, warranty and recall claims; and possible changes in accounting rules; as well as other substantial costs, risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. See also the following portions of our Annual Report on Form 10-K for the year ended September 30, 2012: Item 1. Business , “Customers; Sales and Marketing”; “Competition”; “Raw Materials and Supplies”; “Employees”; “Environmental Matters”; “International Operations”; and “Seasonality; Cyclicality”; Item 1A. Risk Factors; Item 3. Legal Proceedings; and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.



59

MERITOR, INC.


Item 6. Exhibits
3-a
Restated Articles of Incorporation of Meritor, filed as Exhibit 4.01 to Meritor’s Registration Statement on Form S-4, as amended (Registration Statement No. 333-36448) ("Form S-4"), is incorporated by reference.
3-a-1
Articles of Amendment of Restated Articles of Incorporation of Meritor filed as exhibit 3-a-1 to Meritor’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2011, is incorporated by reference.
3-b
By-laws of Meritor, filed as Exhibit 3 to Meritor's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003 (File No. 1-15983), is incorporated by reference.
10-a**
Employment Agreement between Meritor, Inc. and Charles McClure dated May 1, 2013*
10-b**
Employment Agreement between Meritor, Inc. and Vernon Baker, II dated May 1, 2013*
10-c**
Employment Agreement between Meritor, Inc. and Jeffrey Craig dated May 1, 2013*

10-d**
Employment Agreement between Meritor, Inc. and Pedro Ferro dated May 1, 2013*
10-e**
Employment Agreement between Meritor, Inc. and Barbara Novak dated May 1, 2013*

10-f**
Employment Agreement between Meritor, Inc. and Kevin Nowlan dated May 1, 2013*
10-g**
Employment Agreement between Meritor, Inc. and Larry Ott dated May 1, 2013*
10-h
Quota Purchase and Sale Agreement by and among Meritor Heavy Vehicle Systems, LLC, Meritor Do Brasil Sistemas Automotivos LTDA. and Randon S.A. Implementos E Participacoes dated as of April 29, 2013*

12
Computation of ratio of earnings to fixed charges*
23
Consent of Bates White LLC*
31-a
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (Exchange Act)*
31-b
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act*
32-a
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350*
32-b
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350*

* Filed herewith.
** Management Contract or compensatory plan or arrangement.


60

MERITOR, INC.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 
MERITOR, INC.
 
 
 
 
 
Date:
May 3, 2013
By:       
/s/
V. G. Baker, II
 
 
 
 
V. G. Baker, II
 
 
 
 
Senior Vice President and General Counsel
 
 
 
 
(For the registrant)
 
 
 
 
 
 
 
 
 
 
Date:
May 3, 2013
By:
/s/
K. A. Nowlan
 
 
 
 
K. A. Nowlan
 
 
 
 
Senior Vice President and Chief Financial Officer

61

Exhibit 10-a
Charles G. (Chip) McClure, Jr.    
Troy, MI

May 1, 2013



Dear Chip:

This Agreement confirms our mutual understanding of your employment as an elected officer and Chairman, Chief Executive Officer and President (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.


Charles G. McClure, Jr.
May 1, 2013
Page 2

Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of thirty-six (36) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.

Charles G. McClure, Jr.
May 1, 2013
Page 3

•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.


Charles G. McClure, Jr.
May 1, 2013
Page 4

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:


Charles G. McClure, Jr.
May 1, 2013
Page 5

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the

Charles G. McClure, Jr.
May 1, 2013
Page 6

Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.




11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.


12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.




14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international

Charles G. McClure, Jr.
May 1, 2013
Page 7

geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.





16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within

Charles G. McClure, Jr.
May 1, 2013
Page 8

any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).



20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.


21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.



Charles G. McClure, Jr.
May 1, 2013
Page 9

Sincerely,



William R. Newlin
Chairman of the Compensation Committee of the Board of Directors
Meritor, Inc.


Accepted:


/s/ Charles G. McClure, Jr.           May 1, 2013        
Charles G. McClure, Jr.            Date


Exhibit 10-b
Vernon G. Baker II
Troy, MI


May 1, 2013



Dear Vernon:

This Agreement confirms our mutual understanding of your employment as an elected officer and Senior Vice President and General Counsel (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.


Vernon G. Baker II
May 1, 2013
Page 2

Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of twenty-four (24) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.
•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final

Vernon G. Baker II
May 1, 2013
Page 3

regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or

Vernon G. Baker II
May 1, 2013
Page 4

conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

Vernon G. Baker II
May 1, 2013
Page 5


The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.

10. Deferred Compensation


Vernon G. Baker II
May 1, 2013
Page 6

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.




11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.


12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.


14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.


Vernon G. Baker II
May 1, 2013
Page 7

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.

16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your

Vernon G. Baker II
May 1, 2013
Page 8

Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).



20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.


21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Vernon G. Baker II              May 1, 2013        
Vernon G. Baker II            Date


Exhibit 10-c
Jeffrey Craig
Troy, MI


May 1, 2013



Dear Jay:

This Agreement confirms our mutual understanding of your employment as an elected officer and Senior Vice President and President, Truck and Industrial (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.


Jeffrey Craig
May 1, 2013
Page 2

Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of thirty (30) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.
•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final

Jeffrey Craig
May 1, 2013
Page 3

regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or

Jeffrey Craig
May 1, 2013
Page 4

conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro- rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

Jeffrey Craig
May 1, 2013
Page 5


The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half (1 ½) year period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.





Jeffrey Craig
May 1, 2013
Page 6

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.

11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the Supplemental Savings Plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.

12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.


14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.


Jeffrey Craig
May 1, 2013
Page 7

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.

16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your

Jeffrey Craig
May 1, 2013
Page 8

Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).

20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.

21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.

22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Jeffrey Craig                  May 1, 2013        
Jeffrey Craig                Date


Exhibit 10-d
Pedro Ferro
Troy, MI


May 1, 2013



Dear Pedro:

This Agreement confirms our mutual understanding of your employment as an elected officer and Senior Vice President and President, Aftermarket and Trailer (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.

Pedro Ferro
May 1, 2013
Page 2


Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of twenty-four (24) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.

Pedro Ferro
May 1, 2013
Page 3

•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.


Pedro Ferro
May 1, 2013
Page 4

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

Pedro Ferro
May 1, 2013
Page 5


•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.


Pedro Ferro
May 1, 2013
Page 6

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.

11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.

12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.

14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.

15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.


Pedro Ferro
May 1, 2013
Page 7


16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).


Pedro Ferro
May 1, 2013
Page 8



20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.


21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Pedro Ferro                  May 1, 2013        
Pedro Ferro                Date


Exhibit 10-e
Barbara Novak
Troy, MI


May 1, 2013



Dear Barbara:

This Agreement confirms our mutual understanding of your employment as an elected officer and Vice President and Corporate Secretary (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.


Barbara Novak
May 1, 2013
Page 2

Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of eighteen (18) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.
•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final

Barbara Novak
May 1, 2013
Page 3

regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or

Barbara Novak
May 1, 2013
Page 4

conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

Barbara Novak
May 1, 2013
Page 5


The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.





Barbara Novak
May 1, 2013
Page 6

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.


11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.


12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.


14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.


Barbara Novak
May 1, 2013
Page 7

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.

16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your

Barbara Novak
May 1, 2013
Page 8

Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).



20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.


21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Barbara Novak              May 1, 2013        
Barbara Novak                Date


Exhibit 10-f
Kevin Nowlan
Troy, MI


May 1, 2013



Dear Kevin:

This Agreement confirms our mutual understanding of your employment as an elected officer and Senior Vice President and Chief Financial Officer (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.


Kevin Nowlan
May 1, 2013
Page 2

Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of twenty-four (24) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.
•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final

Kevin Nowlan
May 1, 2013
Page 3

regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or

Kevin Nowlan
May 1, 2013
Page 4

conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

Kevin Nowlan
May 1, 2013
Page 5


The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.





Kevin Nowlan
May 1, 2013
Page 6

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.

11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.


12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.


14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.


Kevin Nowlan
May 1, 2013
Page 7

You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.

16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general release agreement within the applicable time period no amounts or benefits will be payable upon your

Kevin Nowlan
May 1, 2013
Page 8

Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).



20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.


21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Kevin Nowlan              May 1, 2013        
Kevin Nowlan                Date


Exhibit 10-g
Larry E. Ott
Troy, MI


May 1, 2013



Dear Larry:

This Agreement confirms our mutual understanding of your employment as an elected officer and Senior Vice President Human Resources and Communications (the “Executive”) with Meritor, Inc. (“Company” or “Meritor”).

If you accept the terms of this Agreement, please return a signed copy to me.

1. Base Salary

You will continue to receive your current monthly base salary in accordance with Company payroll practices. Your performance will be assessed at the end of each performance year against both your annual goals and objectives and the Company’s performance. Based on your performance and the Company’s performance, your salary will be reviewed each year by the Compensation and Management Development Committee of the Board of Directors (“Committee”) which may, at its discretion, adjust your base salary as a direct result of your past performance. Any annual adjustments are typically effective the following December. (Nothing herein shall preclude the Chairman and CEO from effecting a downward adjustment of your salary if in his judgment and the judgment of the Compensation Committee, such adjustment is warranted as a result of the Company’s poor performance or other economic/business related factors or your individual performance.)

2. Annual Incentive Plans

You will be eligible to participate in the Company’s annual incentive plan (Incentive Compensation Plan or ICP) on a basis consistent with those of comparable executives. Your target award will be based upon the Incentive Compensation Plan target percentage for your position within the Company multiplied by your base salary at the end of the fiscal year. Actual award payments will be in accordance with the terms of the Incentive Compensation Plan and may be adjusted to reflect Company performance and your individual performance as approved by the Committee.

3. Long-Term Incentives

Your outstanding equity awards are subject to the provisions in your grant letters as well as any related equity award agreements.

You will continue to participate in the Company’s Long-Term Incentive Plan (LTIP) cash performance plan cycles that are underway at the target cash award level contained in your employment or notification letters for those cycles.

In addition, you will be eligible to participate in the Company’s LTIP cycles in future years on a basis consistent with those of comparable executives in accordance with the provisions of the LTIP and as approved by the Committee. Your LTIP target levels are based upon your position within the Company at the beginning of the three-year performance cycle.

Larry E. Ott
May 1, 2013
Page 2


Payment of any awards under the LTIP will be made in accordance with the terms and conditions of the LTIP and any related award agreements.


4. Stock Ownership Guideline

In order to assure your long-term interest in the Company’s success, as an officer of the Company you are expected to acquire and retain shares of Meritor stock in the amount required for your level and position in the Company. This amount will be determined by the Compensation Committee and re-evaluated periodically. You will be notified of this requirement annually. The stock ownership guidelines provide a transition period within which to achieve compliance. This period ends five years after the date the ownership guidelines become applicable to you ( i.e. , five (5) years after the date of your hire, becoming an officer, or a change in the ownership requirement.)

5. Benefits

You will be eligible to participate in all employee retirement and health and welfare benefit plans maintained by the Company and offered to all full time employees of the Company, including medical, disability, life insurance and vacation, to the extent permitted by the terms of the plans and by the law, subject to the Company’s rights to amend or terminate such plans as set forth in those plans.

As an officer of the Company, you will continue to be eligible for the following additional benefits, payable in accordance with the terms of the applicable policies, subject to the Company’s rights to modify or terminate such benefits:

•
Car Allowance
•
Financial Counseling Allowance
•
Personal Excess Liability Coverage

6. Severance Benefits

If you incur a separation from service with the Company within the meaning of Section 409A (as defined below) (“Separation from Service”), you will be eligible for certain severance benefits as follows:

•
A.    By the Company Without Cause.
•
Any accrued and unpaid salary and vacation pay through your date of Separation from Service with the Company (“Accrued Obligations”) paid in a lump sum within thirty (30) calendar days following your Separation from Service or such earlier date as may be required by law.
•
Severance pay (annualized base salary at time of separation) over a period of twenty-four (24) months commencing on the date of your Separation from Service (“Severance Period”) payable in accordance with the following paragraphs. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payments extend beyond the Severance Period.
•
Not withstanding any Section 409A restrictions, your severance pay will be paid in equal semi-monthly installments beginning with the first payroll cycle that includes the Release Effective Date (as defined in paragraph 19 herein). You will receive any amount due for the period from the date of your Separation from Service through the Release Effective Date in a lump sum within one week of the Release Effective Date.

Larry E. Ott
May 1, 2013
Page 3

•
Notwithstanding the foregoing, if you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations thereunder (“Section 409A”), you will be required to wait to receive any portion of your severance pay that is not exempt from Section 409A.
•
A portion of your severance pay may be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii). The amount that is exempt under Section 409A is the amount of separation pay that does not exceed two times the lesser of (1) your annualized compensation determined in accordance with Section 409A regulations and (2) the maximum amount that may be taken into account under IRC Section 401(a)(17) for the year in which you separate from service (the “409A Exempt Amount”).
•
Any portion of your severance pay that is not exempt under the Section 409A exemption that would otherwise have been paid during the first six (6) months following your Separation from Service will be paid in a lump sum the first payroll cycle following the six (6) month anniversary of your Separation from Service.
•
The balance of your severance pay that is not exempt under the Section 409A exemption will be paid in equal semi-monthly payments beginning with the later of (1) the first payroll cycle after the payroll cycle in which the 409A Exempt Amount has been completely paid and (2) the first payroll cycle after your six (6) month anniversary of your Separation from Service.
•
Pro-rata, actual annual incentive bonus participation for the then-current fiscal year, based on the time actually worked and your performance, paid after the end of the fiscal year, in accordance with the terms of the Incentive Compensation Plan.
•
Continued health coverage through the end of the Severance Period, provided that (A) to the extent any such benefit is provided via reimbursement to you, no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (B) any such benefit provided by the Company in any year will not be affected by the amount of any such benefit provided by the Company in any other year, subject to any maximum benefit limitations under the applicable plan's terms, and (C) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit. Moreover, if you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.
•
Continued life insurance coverage through the end of the Severance Period.
•
Short and Long-Term Disability coverage will remain in effect through the last day actually worked prior to the start of the Severance Period.
•
Vesting or forfeiture of special grants of service-based restricted shares, performance shares, Restricted Stock Units (RSUs) or stock options, made either at the time of your hire, or as a special retention incentive, will be determined under the agreement relating to the grant.
•
Vesting or forfeiture of all other restricted shares, RSUs, performance shares, stock options and payouts under cash performance plans, will be determined under the terms of the LTIP under which the grant was made and any agreements related to the grants.
•
Payment of all vested benefits under the Company’s savings plans and pension plan if applicable, in accordance with the terms of such plans.
•
Reasonable outplacement services for a period of twelve (12) months from the date of your Separation from Service at a cost not to exceed $10,000.


Larry E. Ott
May 1, 2013
Page 4

•
B.    By the Company for Cause ( Cause is defined as continued and willful failure to perform duties, provided that you have been given written notice and an opportunity to cure the failure within five business days of receipt; gross misconduct which is materially and demonstrably injurious to the Company; or conviction of or pleading guilty or no contest to a (a) felony or (b) other crime which materially and adversely affects the Company):
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.
•
Forfeit all unvested long-term incentive awards, performance shares, restricted stock, RSUs and cash portions of any Long-Term incentive cycles.
•
Forfeit eligibility to receive an annual incentive award.

•
C.    By the Executive for any reason (other than death or disability) :
•
Accrued Obligations paid within thirty (30) days following your Separation from Service or such earlier date as may be required by law.
•
Any vested plan benefits under the Company’s savings plans, payable in accordance with the terms of such plans.

7. Change in Control

In the event of a Change in Control as defined in the LTIP, you will be eligible for vesting and payment of equity grants and awards under cash performance plans under the LTIP in accordance with the terms of that plan and the related grants and agreements.

In the event of your Separation from Service as a result of a Change in Control (as defined in the LTIP), but no later than one year thereafter (except for Cause), you will also be eligible for:

•
The severance terms outlined above under 6A “By The Company Without Cause”; provided , that the full target amount of the annual bonus under the Incentive Compensation Plan for the then-current fiscal year will be paid within thirty (30) days of your termination (instead of a pro-rata amount of actual payout at the end of the fiscal year).

If payments and benefits to or for the benefit of you, whether pursuant to this agreement or otherwise, would result in total Parachute Payments (defined under Section 280G of the Internal Revenue Code of 1986 as all compensatory payments or benefits that would not have been paid if no change in control had occurred) to you with a value equal to or greater than one hundred percent (100%) of the Parachute Payment Limit (defined as 3x the individual’s 5-year average taxable income (Box 1 of Internal Revenue Service Form W2)), the amount payable to you, shall be reduced so that the value of all Parachute Payments to you, whether or not made pursuant to this Agreement, is equal to the Parachute Payment Limit minus one dollar ($1.00).

This will be accomplished by first reducing any amounts payable pursuant to this agreement, including other amounts of compensation to the extent necessary.

No such reduction shall be taken, however, if the total Parachute Payments accruing to you would be more than the amount of the total Parachute Payments after:

•
taking the reduction for any applicable federal excise tax imposed on you by Section 4999 of the Code and;

Larry E. Ott
May 1, 2013
Page 5


•
further reducing such payment by any federal, state and local income taxes imposed on you with respect to the total Parachute Payments.

The Company agrees to undertake such reasonable efforts as it may determine in its sole discretion to prevent any payment or benefit under this Agreement (or any portion thereof) from constituting and “excess parachute payment,” as defined under Section 280G(b)(I) of the IRS Code.

8. Death Benefits
•
Accrued Obligations paid within thirty (30) days following your death or such earlier date as may be required by law.
•
Pro-rata annual incentive bonus participation for the time actually worked in the year of death, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeiture or vesting of restricted shares/RSUs, performance shares, and stock options and payouts under cash performance plans in accordance with the terms of the LTIP and award agreements under which unvested shares were granted or your original employment letter, as applicable.
•
Continued medical, dental and/or vision plan coverage for your spouse and other dependents for six (6) months following your death and at the end of this six (6) month period your spouse and dependents may be eligible for coverage under COBRA (for an additional period not to exceed thirty (30) months).
•
Payment of all death benefits under the Company’s savings plans and pension plans, if applicable, in accordance with the terms of such plans.

9. Disability

Disability is initially defined as the inability to perform the duties of your current job as a result of disease or injury. Based on your years of service, your first six (6) months of disability (“Short-Term Disability”) will result in either full salary continuation for the entire six-month period or a combination of full salary continuation and reduced salary continuation for said six-month period. Following Short-Term Disability, if you are unable to perform your job duties and otherwise meet the requirements for benefits under the Company’s Long-Term Disability Plan, you will be placed on a leave of absence due to Long-Term Disability and will receive benefits under the provisions of the Company’s Long-Term Disability Plan. Following a one and one-half year (1 ½) period on Long-Term Disability, eligibility for continued coverage under the Company’s Long-Term Disability Plan will be based on your inability to perform any job for which you are qualified by education, training or experience. While you are on Long-Term Disability, you will:

•
Be eligible to receive a pro-rata annual incentive bonus based on the time that you were actively at work, paid in accordance with the terms of the Incentive Compensation Plan.
•
Forfeit or vest in your equity and cash performance awards in accordance with the terms of the LTIP and award agreements under which shares were granted.
•
Be entitled to medical, dental, vision and life insurance coverage on the same terms as if you were actively employed while you are on Long-Term Disability.
•
If you participate in the Company’s defined benefit pension plans, you will continue to earn vesting service, but you will not receive credited service for the purpose of determining your plan benefit; and if you are eligible to receive Company pension contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, you will continue to earn vesting service, but Company contributions to such plans will cease.


Larry E. Ott
May 1, 2013
Page 6

10. Deferred Compensation

If you incur a Separation from Service with the Company, any amounts deferred by or on your behalf under the Company’s Deferred Compensation Plan, the Supplemental Savings Plan or the Supplemental Pension Plan, if applicable, will be paid in accordance with the terms of such plans.




11. Retirement Benefits

You are eligible to participate in the 401(k) Savings Plan, which has discretionary matching company contributions, and the supplemental savings plan. In addition, you are eligible to receive the pension contribution in accordance with the terms of the Company’s savings plans, which is a percentage of base pay and ICP varying by age that is available under those plans.

12. Indemnification

The Company will provide indemnification and defend you with regard to any claims arising from any decision made by you in good faith, while performing services for the Company, in accordance with the provisions of the Company’s by-laws.

13. Clawback of Incentive-Based Compensation

Notwithstanding any other provision in this Agreement to the contrary, you agree that any “incentive-based compensation” within the meaning of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be subject to clawback by the Company in the manner required by Section 10D(b)(2) of the Exchange Act including any future requirements determined by the U.S. Securities and Exchange Commission and implemented by the Compensation Committee of the Board of Directors.


14. Director’s and Officer’s Insurance

The Company shall provide you with reasonable Director’s and Officer’s liability insurance coverage.


15. Non-Compete/Non-Solicitation

For the duration of the Severance Period, except as permitted by the Company’s prior written consent, you are restricted from, in any capacity in which Proprietary Information (as defined in paragraph 17) or the Company’s trade secrets would reasonably be regarded as useful, engaging in, being employed by, or in any way advising or acting for any business which is a competitor of the Company with respect to the products or services provided by any business unit within the Company to which you devoted substantial attention in the year preceding termination of employment with the Company, and within the national and international geographic markets served by any such business unit. Depending on the scope of your responsibilities in the year preceding termination of employment with the Company, this restriction could potentially apply to a geographic area co-extensive with the Company’s operations, which are worldwide. You will be expected to confirm the terms of this section in writing at the time of termination of active employment. You also agree that if your employment is terminated by the Company, whether with or without cause, the consideration provided in the Severance Benefits section of this Agreement is sufficient for the restriction described in this paragraph.

Larry E. Ott
May 1, 2013
Page 7


You agree that for a period of (number of months separation) months following the date of your departure (last day worked) from the Company, you will not solicit for employment any Meritor employee, unless permission to do so is granted to you in writing by Meritor’s CEO or his designee.

16. Arbitration

You have previously agreed to sign the Company’s “Mutual Agreement to Arbitrate Claims” and the Company’s “Standards of Business Conduct and Conflict of Interest Certificate.” Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be submitted to and resolved by final and binding arbitration in Oakland County, Michigan (conducted pursuant to the rules of the American Arbitration Association).

17. Proprietary Information

In the event you leave employment of the Company for any reason, you agree that you will not disclose, nor will you use, any Company Proprietary Information after you leave employment of the Company. Proprietary information is any sensitive information owned by the Company and which gives or potentially gives the Company certain competitive advantages and is not widely known to the public.  Proprietary information can include secret formulas, processes, and methods used in production. It can also include the Company's business and marketing plans, salary structure, customer lists, contracts, and details of its computer systems.  Special knowledge and skills that an employee has learned on the job are considered to be the Company's proprietary information.


18. Survival of Restrictive Covenants

You acknowledge that the restrictive covenants shall survive the termination of your employment for any reason. You further acknowledge that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate your obligations under the restrictive covenants or preclude the Company from seeking appropriate legal relief. You acknowledge that such obligations are independent and separate covenants undertaken by you for the benefit of the Company.

19. Waiver and Release

You agree that, as a condition to receive any amounts or benefits payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans), you will execute a release agreement within the applicable time period from the date of your Separation from Service and not revoke such acceptance of the agreement within any revocation period prescribed by law. The scope of the release agreement will include causes of action of every kind, nature and description whatsoever, arising out of your employment by or affiliation with Meritor or the separation of such employment, including any dispute having to do with any contract, agreement or implied agreement between you and Meritor. The date the release agreement becomes irrevocable will be the Release Effective Date. If you do not sign a general release agreement within the applicable time period or if you sign such agreement and revoke it within the applicable revocation period, any amounts and benefits (other than Accrued Obligations and benefits in which you are otherwise vested under terms of the applicable benefit plans) will cease as of the last day of the applicable time periods and will not resume unless and until the Release Effective Date. In such case any unpaid amounts for the period from the day after the end of the applicable time period following your Separation from Service to the Release Effective Date will be paid on the first payroll date that includes the Release Effective Date. Notwithstanding any other provision of this Agreement to the contrary, if you do not sign the general

Larry E. Ott
May 1, 2013
Page 8

release agreement within the applicable time period no amounts or benefits will be payable upon your Separation from Service (other than Accrued Obligations and benefits in which you are otherwise vested under the terms of the applicable benefit plans).

20. Review by Counsel

You acknowledge and agree that you have been advised to consult with an attorney prior to signing this Agreement. You also acknowledge and agree that this Agreement is voluntarily entered into by you in consideration of the undertakings by the Company as set forth in this Agreement and is consistent in all respects with discussions by the Company’s personnel with you.

21. Entire Agreement

Except with respect to provisions regarding vesting or forfeiture of certain equity grants and payout of cash plans that are specifically referred to above, this letter supersedes the provisions of any prior employment letter between you and the Company. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.


22. Successors and Assigns

This Agreement will be binding upon and inure to the benefit of any successors to the Company.


23. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.


24. Governing Law

This Agreement will be governed by the laws of the State of Michigan.


Sincerely,



Charles G. McClure, Jr.
Chairman, Chief Executive Officer and President
Meritor, Inc.


Accepted:


/s/ Larry E. Ott                  May 1, 2013        
Larry E. Ott                Date



Exhibit 10-h





QUOTA PURCHASE AND SALE
AGREEMENT





by and among



MERITOR HEAVY VEHICLE SYSTEMS, LLC and

MERITOR DO BRASIL SISTEMAS AUTOMOTIVOS LTDA.


and


RANDON S.A. IMPLEMENTOS E PARTICIPAÇÕES










Dated April 29, 2013









QUOTA PURCHASE AND SALE AGREEMENT



THIS QUOTA PURCHASE AND SALE AGREEMENT is made and entered into as of April 29 th , 2013, by and among:


I. MERITOR HEAVY VEHICLE SYSTEMS, LLC , a company duly organized and existing under the laws of the State of Delaware, United States of America, headquartered at 2135 West Maple Road, 48084, Troy, State of Michigan, United States of America, enrolled with the Corporate Taxpayer Register of the Ministry of Finance under CNPJ No. 05.732.826/0001-69, herein represented by its undersigned legal representative(s), hereinafter referred to as “ HVS ”,


II. MERITOR DO BRASIL SISTEMAS AUTOMOTIVOS LTDA., a company duly organized and existing under the laws of Brazil, having its principal place of business in the city of Osasco, State of São Paulo, at Rua Nathanael Tito Salmon, 409, CEP 06016-075, enrolled with the Corporate Taxpayer Register of the Ministry of Finance under CNPJ No. 56.669.187/0001-75, herein represented by its undersigned legal representative(s), hereinafter referred to as “ MERITOR BRAZIL ” and together with HVS , the “ Sellers ”, and



III . RANDON S.A. IMPLEMENTOS E PARTICIPAÇÕES , a publicly held corporation duly organized and existing under the laws of Brazil, having its principal place of business in the city of Caxias do Sul, State of Rio Grande do Sul, at Avenida Abramo Randon, 770, CEP 95055-010, Interlagos District, enrolled with the Corporate Taxpayer Register of the Ministry of Finance under CNPJ No. 89.086.144/0001-16, herein represented by its undersigned legal representative(s), hereinafter referred to as “ RANDON ” or the “ Purchaser ”,

and also, as Intervening Parties,

IV. MASTER SISTEMAS AUTOMOTIVOS LTDA. , a company duly organized and existing under the laws of Brazil, having its principal place of business in the city of Caxias do Sul, State of Rio Grande do Sul, at Rua Atílio Andreazza, 3.520, CEP 95052-070, enrolled with the Corporate Taxpayer Register of the Ministry of Finance under CNPJ No.


90.852.914/0001-73, herein represented by its undersigned legal representative(s), hereinafter referred to as “ MASTER ”; and


V. SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA., a company duly organized and existing under the laws of Brazil, having its principal place of business in the city of Caxias do Sul, State of Rio Grande do Sul, at Avenida Abramo Randon, 1262, CEP 95055-010, enrolled with the Corporate Taxpayer Register of the Ministry of Finance under CNPJ No. 10.523.280/0001-76, herein represented by its undersigned legal representative(s), hereinafter referred to as “ COMPANY ”.

Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth or referred to in Article I. Terms defined in the singular have a comparable meaning when used in the plural, and vice versa.


RECITALS

A. MASTER is a joint venture between MERITOR BRAZIL and Purchaser , and the COMPANY , following the capital reduction referred to in Recital C, will be a joint venture between HVS , MERITOR BRAZIL and the Purchaser , each of which is dedicated to the import, export, manufacturing and sale of systems, parts and components for different type of vehicles, as well as to the provision of services in connection thereto.


B. MERITOR BRAZIL and the Purchaser are the sole owners of all of the quotas comprising the total corporate capital of MASTER , in the proportion of 51% to the Purchaser and 49% to MERITOR BRAZIL.


C. By virtue of a certain capital reduction deliberated through the Minutes of the 56 th . Shareholders Resolution held by the totality of MASTER shareholders on March 1 st ., 2013, MERITOR BRAZIL shall receive payment in kind, represented by quotas held by MASTER in the corporate capital of the COMPANY , due to which payment MERITOR BRAZIL shall become the owner before the Closing Date (as herein defined) of 26.057 quotas corresponding to 26,057% of the corporate capital of the COMPANY , and all such quotas to be held and owned by MERITOR BRAZIL are hereinafter referred to as the “ MERITOR BRAZIL Quotas ”.

D. HVS owns 23.942 quotas in the corporate capital of the COMPANY , corresponding to a participation of 23, 942% of its total capital stock, and all such quotas held by HVS are hereinafter referred to as the “ HVS Quotas ”.

E. Sellers desire to sell, transfer and assign to Purchaser , and Purchaser desires to acquire from Sellers , and accepts the transfer and assignment of, all of the MERITOR BRAZIL Quotas and all of the HVS Quotas , which together are hereinafter simply referred


to as the “ Quotas ”. Upon the sale, transfer and assignment of the Quotas, Purchaser shall become their sole owner and beneficiary, subject to the terms and conditions set forth in this Agreement.


THEREFORE, in consideration of the mutual covenants and undertakings contained in this Agreement, and subject to and its terms and conditions, intending to be legally bound, the Parties agree as follows:


ARTICLE I

Section 1.1     Definitions .    As used in this Agreement, the following capitalized terms have the meanings set forth or referred to in this Section.

“Agreement” means this Quota Purchase and Sale Agreement and its Exhibit I.

“Brazilian Reais” means the Brazilian local currency.

“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in Brazil are authorized or obligated by law not to open or remain closed.


“CADE” means the Administrative Council for Economic Defense, Brazil’s antitrust authority.

“CCBC” means the Brazil-Canada Chamber of Commerce.

“Closing” or “Closing Date” has the meaning set forth in Section 4.1.


“ COMPANY ” has the meaning set forth in the preamble.

“Confidential Information” has the meaning set forth in Section 6.2.

“Exemption Period” has the meaning set forth in Section 2.2(c).

“ HVS Quotas ” has the meaning set forth in the preamble.

“JVA” has the meaning set forth in Section 6.1.

“Lease Agreement” has the meaning set forth in Section 2.2(c).

“ MERITOR BRAZIL Quotas ” has the meaning set forth in the preamble.



“Notice of Dispute” has the meaning set forth in Section 8.1.

“ Party ” means HVS , MERITOR BRAZIL , RANDON , MASTER and the COMPANY , and “ Parties ” means all of them, and in each case shall include their respective successors and permitted assigns.
“Profits” means MASTER ’s income after taxes increased by any interest on equity deducted in computing income after taxes.

“PTAX Rate” means the US Dollar foreign exchange purchase rate.

“ Purchaser ” has the meaning set forth in the preamble.

“Purchase Price” has the meaning set forth in Section 2.2.

“Quotas” has the meaning set forth in the preamble.

“ Sellers ” has the meaning set forth in the preamble.

“Sisbacen System” means the electronic system of the Brazilian Central Bank through which the registrations of foreign equity investments and reinvestments are made.

“Suspensys IP” means: 1) the intellectual property owned by Suspensys on the Closing Date, including without limitation, a) the technology transferred to Suspensys in Section 11.1 of the Joint Venture Agreement dated August 15, 2002 (“the JVA”) and any developments and improvements thereto made by Suspensys and b) any intellectual property independently developed by Suspensys prior to the Closing Date; and 2) any of the Meritor technology (as described in Section 11.2 of the JVA) which is as of the Closing Date being used in volume production by Suspensys and which is or was the subject of a license agreement from Meritor to Suspensys.


ARTICLE II

Section 2.1     Purchase and Sale of the Quotas . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing,

(a)     HVS shall sell, convey, transfer, assign and deliver to Purchaser and Purchaser shall purchase, accept and receive from HVS, all of HVS ’ rights, title and interest in and to the HVS Quotas , free and clear of all liens and encumbrances, and

(b)      MERITOR BRAZIL shall sell, convey, transfer, assign and deliver to Purchaser and Purchaser shall acquire, accept and receive from MERITOR BRAZIL , all of MERITOR BRAZIL’ s rights, title and interest in and to the MERITOR BRAZIL Quotas, in the quantity and as they shall be received from MASTER in consideration for the capital reduction referred to in Recital C hereof.




Section 2.1.1     Obligations of MASTER. For the implementation of the transaction agreed hereto, MASTER hereby commits to, until the Closing Date:

(a) Maintain all of the quotas held in the COMPANY’s corporate capital free and clear of any lien, security interest, pledge, restriction, encumbrance or claim;


(b) Implement and make effective, without any delay when legally permitted under the Brazilian law, the reduction of its corporate capital, as set forth in Recital C above; and

(c) Pay, in kind, to MERITOR BRAZIL and RANDON the amounts due as a result of the capital reduction mentioned above, represented by quotas held by MASTER in the corporate capital of the COMPANY .


Section 2.2     Purchase Price and Payment . The aggregate amount of the consideration for the purchase and sale of the Quotas by the Purchaser from the Sellers is one hundred ninety- five million United States Dollars (US$ 195,000,000.00) (the “Purchase Price”) and is composed by the following:


(a)     Subject to reduction in the amounts, if any, required to be withheld by Purchaser pursuant to the terms of Section 2.4, the amount of Ninety-Three Million, Two Hundred Fifty-Six Thousand, Thirty-Eight United States Dollars (US$93,256,038) shall be paid by the Purchaser to HVS at Closing, by a wire transfer in immediately available funds, to the account indicated in Section 2.3, as a full consideration for the HVS Quotas ;


(a.1)    The amount of Four Million Seven Hundred Twenty One Thousand Two Hundred Fifty Brazilian Reais and Forty Five Cents (R$ 4,721,250.45) shall be paid by Purchaser to HVS through the dividend and interest on equity contemplated by Section 4.1.1(e) and its correspondent amount in United States Dollars shall be deducted from the amount mentioned in (a) above. The conversion of the Brazilian Reais into United States Dollars shall be effected by applying the PTAX Rate in force in the Business Day immediately preceding the payment date of the dividend and interest on equity.


(b)     The amount equivalent in Brazilian Reais to Ninety-Six Million, Seven Hundred Forty-Three Thousand, Nine Hundred Sixty-Two United States Dollars (US$96,743,962) shall be paid by the Purchaser to MERITOR BRAZIL at Closing, by a wire transfer in immediately available funds, to the account indicated in Section 2.3, as a partial consideration for the MERITOR BRAZIL Quotas , with the remaining consideration for such quotas to be paid in accordance with the terms of Section 2.2(c). The conversion of the United


States Dollars into Brazilian Reais shall be effected by applying the PTAX Rate in force in the Business Day immediately preceding the Closing Date.


(b.1)    The amount of Four Millions Three Hundred Sixty Seven Thousand Five Hundred Twenty Five Brazilian Reais and Fifty Two Cents (R$ 4,367,525.52) shall be paid by Purchaser to MERITOR BRAZIL through the dividend and interest on equity contemplated by Section 4.1.1(e) and its correspondent amount in United States Dollars shall be deducted from the amount mentioned in (b) above. The conversion of the Brazilian Reais into United States Dollars shall be effected by applying the PTAX Rate in force in the Business Day immediately preceding the payment date of the dividend and interest on equity.


(c)    The amount of five million United States Dollars (US$ 5,000,000.00) shall be paid by Purchaser to MERITOR BRAZIL through the following mechanism: (i) Purchaser shall cause the COMPANY to execute with MERITOR BRAZIL at or prior to Closing the lease agreement in the form of the draft attached hereto and which constitutes the Exhibit I to this Agreement (the “Lease Agreement”), related to the real estate property located in the city of Resende, Rio de Janeiro State, at Rua Projetada, No. 595, Polo Industrial District, Zip Code 27511-970, as further described and identified in the Lease Agreement, (ii) the Lease Agreement, among other terms and conditions, shall state that, as of the Closing Date, MERITOR BRAZIL shall not be responsible for or in any way be required to make the payment of the monthly lease amounts set forth therein, meaning that MERITOR BRAZIL shall be exempted from making such payments to the COMPANY for the period of time needed to accumulate the amount of five million United States Dollars (US$ 5,000,000.00) of monthly lease exemptions (the “Exemption Period”).


Section 2.2.1     If, for any reason whatsoever, MERITOR BRAZIL is prevented from taking the full benefit of five million United States Dollars (US$ 5,000,000.00) of monthly lease exemptions as set forth in item (c) above, including, but not limited to, due to a force majeure event, and such reason or event lasts more than ninety (90) days, the Purchaser shall pay such amount or any balance thereof to MERITOR BRAZIL within the subsequent thirty (30) days.


Section 2.2.2    For purposes of allocating the Purchase Price between HVS and MERITOR BRAZIL , the discounted fair market value of the five million United States Dollars (US$ 5,000,000) of exempted lease payments shall be deemed to be Four Million, Seven Hundred Fifty Thousand United States Dollars (US$ 4,750,000.00).


Section 2.3     Wire Transfer Instructions . The Purchase Price mentioned in items (a) and (b) of Section 2.2 shall be wired by Purchaser to the following bank accounts designated by Sellers :



(a)     Beneficiary : Meritor Heavy Vehicle Systems, LLC
Bank name : JP Morgan Chase Bank, N.A. – One Chase Manhattan Plaza, New York, NY 1005-1401
ABA # [REDACTED]
SWIFT : [REDACTED]
Account No. : [REDACTED]

(b)     Beneficiary : Meritor do Brasil Sistemas Automotivos Ltda.
Bank name: Banco Bradesco S.A. Bank number : [REDACTED]
Bank branch No .: [REDACTED]
Account No .: [REDACTED]


Section 2.4    To the extent required under the Brazilian applicable tax law to the transaction contemplated by this Agreement, Purchaser shall be responsible for withholding the income tax levied upon the interest on equity referred to in items 2.2 (a.1) and (b.1) and, from the cash payment referred to in item (a) of Section 2.2, the income tax at the rate of fifteen percent (15%) due in Brazil by HVS on the capital gain (if any) arising from the sale of the HVS Quotas , as well as for paying such tax to the local authorities, providing HVS with a certified copy of the payment document. The calculation of the possible capital gain (if any) shall be made by the advisors of HVS and submitted to Purchaser .


Section 2.5    The Parties acknowledge and accept that according to the Brazilian antitrust law and regulations, the transactions contemplated hereunder are subject, for their implementation, to the CADE’s approval by a formal decision, such clearance being a condition precedent to Closing as per item (d) of Section 4.1.1. Accordingly, the Parties shall jointly prepare and submit to CADE, upon execution of this Agreement, the relevant notification and shall not modify their structure and the dynamics of competition in the relevant market pending CADE’s decision.

    
ARTICLE III
 
Section 3.1     Representations and Warranties of Sellers . Sellers represent and warrant to Purchaser as follows as of the date of this Agreement and as of the Closing Date:


(a)      HVS is the sole owner of the HVS Quotas , free and clear of any lien, security interest, pledge, restriction, encumbrance or claim, and has full legal right, power and authority to enter into this Agreement, to assign and transfer the HVS Quotas to Purchaser in accordance with this Agreement, to perform its obligations hereunder and the performance of its obligations hereunder has been duly authorized by any and all persons or entities, governmental or not, as applicable. Before the Closing Date and upon the legal completion by MASTER of the capital reduction referenced in Recital C hereof, MERITOR BRAZIL shall become the sole owner of the MERITOR BRAZIL Quotas by receiving from MASTER


the quotas held by MASTER in the corporate capital of the COMPANY, in the proportion attributable to MERITOR BRAZIL by virtue of the capital reduction referred to in Recital C hereof, and the MERITOR BRAZIL Quotas shall be in the quantity and as they shall be received from MASTER in consideration for the capital reduction referenced in Recital C hereof. MERITOR BRAZIL has full legal right, power and authority to enter into this Agreement and, on the Closing Date shall have full legal right to assign and transfer the MERITOR BRAZIL Quotas to Purchaser in accordance with this Agreement, to perform its obligations hereunder and the performance of its obligations hereunder shall have been duly authorized by any and all persons or entities, governmental or not, as applicable.

(b)    Except for the CADE’s approval as referred to in Section 2.5 herein, no other consent or authorization from any governmental entity is required. All corporate actions on the part of Sellers , their officers, directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by Sellers have been taken, or will be taken, prior to Closing. The execution of this Agreement and the fulfillment of the obligations by Sellers (i) do not breach any provision under their respective corporate documents, and (ii) do not breach any law, statute, judicial, administrative or arbitration decision, to which the respective Party is bound, except, in each case, for such breaches that would not prohibit or materially impair such Party’s ability to perform its obligations under this Agreement.


(c)    This Agreement, duly executed and delivered by Sellers , shall constitute the legal, valid and binding obligations of Sellers , enforceable in accordance with their respective terms and conditions, subject, however, with respect to MERITOR BRAZIL , to the effective legal completion of MASTER’s capital reduction and consequent assignment and transfer to MERITOR BRAZIL of the proportionate amount of the ownership and title over the quotas held by MASTER with respect to the equity participation of MERITOR BRAZIL in the corporate capital of the COMPANY , as provided for hereunder. Upon execution by Sellers and Purchaser at the Closing of the amendment to the Articles of Association of the COMPANY reflecting the assignment and transfer of the Quotas to Purchaser , and subsequent delivery thereof to Purchaser , Purchaser will acquire all of Sellers ’ title to such Quotas and to the totality of the capital stock of the COMPANY .


(d)     The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by Sellers will not violate, conflict with or result in a breach of or constitute a default under or termination of (or an event which might, with the passage of time or the giving of notice or both, constitute a default under or termination of) any of the terms, conditions or provisions of any agreement or instrument to which any of the Sellers is a party or by which any of them or any of their assets may be bound or affected, or any judgment or order of any court or governmental department, commission, board or agency, or any applicable law, rule or regulation, except, in each case, for such breaches that


would not prohibit or materially impair such Party’s ability to perform its obligations under this Agreement.


Section 3.2     Representations and Warranties of Purchaser . Purchaser represents and warrants to Sellers as follows as of the date of this Agreement and as of the Closing Date:

(a)     Purchaser has full legal right, corporate power and authority to make, execute, deliver and perform this Agreement. This Agreement, duly executed and delivered by Purchaser , shall constitute the legal, valid and binding obligations of Purchaser , enforceable in accordance with their respective terms and conditions. The execution of this Agreement and the fulfillment of the obligations by Purchaser (i) do not breach any provision under its corporate documents, and (ii) do not breach any law, statute, judicial, administrative or arbitration decision, which the respective Party is bound to, except, in each case, for such breaches that would not prohibit or materially impair such Party’s ability to perform its obligations under this Agreement.

(b)    Except for the CADE’s approval as referred to in Section 2.5 herein, no other consent or authorization from any governmental entity is required. All corporate actions on the part of Purchaser , its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by Purchaser have been taken, or will be taken, prior to Closing. This Agreement constitutes the legal, valid and binding obligation of Purchaser , enforceable against it in accordance with the terms and conditions of the Agreement. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by Purchaser will not violate, conflict with or result in a breach of or constitute a default under or termination of (or an event which might, with the passage of time or the giving of notice or both, constitute a default under or termination of) any of the terms, conditions or provisions of any agreement or instrument to which the Purchaser is a party or by which any of its assets may be bound or affected, or any judgment or order of any court or governmental department, commission, board or agency, or any applicable law, rule or regulation, except, in each case, for such breaches or defaults that would not prohibit or materially impair such Party’s ability to perform its obligations under this Agreement.


ARTICLE IV
 
Section 4.1     Closing . The Parties will use their respective best efforts to consummate the transactions contemplated by this Agreement, at the Purchaser ’s head office, in the address indicated in the preamble hereof, at 10:00 AM, within two (2) business days after the date on which all conditions to Closing set forth in Section 4.1.1 hereof are fully fulfilled, but, in any case, no later than September 1 st , 2013 (the “ Closing ” or the “ Closing Date ”). The Closing Date shall be automatically extended by any delay which is outside of the control, and without the fault, of the Parties, including any failure to satisfy any of the


conditions to Closing set forth in Section 4.1.1. In addition, the Closing Date may be extended by mutual agreement of the Parties.


Section 4.1.1     Conditions to Closing . The Closing of the transactions contemplated hereby shall be preceded by, and conditioned upon, the following cumulative events:

(a) Purchaser , HVS and MASTER shall have caused the capital of the COMPANY to be increased by One-Hundred Eighteen Million Brazilian Reais (R$ 118,000,000.00) through the capitalization of the COMPANY ’s Profit Reserve as presented in its balance sheet drawn up on December 31, 2012, as well as the relevant capitalization to be registered with the Sisbacen System, such capitalization and registration to occur no later than May 10, 2013;

(b) MASTER shall have completed, made legally effective and formalized its capital reduction, through the relevant amendment to the Articles of Association, duly filed with the relevant Board of Trade, as deliberated by the Minutes of the 56 th . Shareholders Resolution held on March 1 st ., 2013;

(c) MASTER shall have effected the payment in kind of the capital reduction amount to its quotaholders, i.e., MERITOR BRAZIL and RANDON , by assigning and transferring to them, proportionally to their respective equity participation, the full title of all of the quotas held by MASTER in the corporate capital of the COMPANY , such assignment and transfer through the appropriate amendment to the Articles of Association of the COMPANY , duly filed with the relevant Board of Trade, by virtue of which MERITOR BRAZIL shall have acquired the legitimate ownership of the MERITOR BRAZIL Quotas ;

(d) A decision by CADE’s General Superintendent Office clearing the transaction contemplated in this Agreement shall have been issued and an additional mandatory fifteen (15) day waiting period following publication of the decision in the federal gazette shall have elapsed with no appeal by third parties or request for further review by any of CADE’s Commissioners or, in case that an appeal is filed or further review is requested, a definitive clearing decision by CADE is rendered (the “Final CADE Receipt Day”); and

(e) The Parties shall have formalized the following interest on equity and dividends distributions:

(i) Immediately after the signature of this Agreement, on the same day, the COMPANY will declare the distribution of dividends and interest on equity for its quotaholders correspondent to the COMPANY ’s 2012 fiscal year, in total amount of Sixteen Million Nine Hundred Seven-Teen Thousand Three Hundred Seventy Brazilian Reais and Twenty-Two Cents (R$ 16,917,370.22) as follows:




Quotaholder
Interest on Equity (R$)
Dividends (R$)
MASTER
7,124,521.79
1,871,628.17
HVS
3,207,689.43
842,667.35
RANDON
3,065,539.29
805,324.19

(ii) Immediately after the formalization of the item (i), on the same day, the COMPANY will declare the distribution of interest on equity for its quotaholders correspondent to the COMPANY ’s 2013 first quarter results, in total amount of Two Million Eight Hundred Two Thousand One Hundred Sixty Two Brazilian Reais and Nineteen Cents (R$ 2,802,162.19) as follows:
 

Quotaholder
Interest on Equity (R$)
MASTER
 1,490,105.79
HVS
670,893.67
RANDON
641,162.73

(iii) MERITOR BRAZIL will receive indirectly through MASTER own distribution the amount of Four Million Three Hundred Sixty Seven Thousand Five Hundred Twenty Five Brazilian Reais and Fifty Two Cents (R$ 4,367,525.52). MASTER will declare the distribution of interest on equity and dividend for its quotaholders correspondent to the MASTER ’s 2012 fiscal year and 2013 first quarter results immediately after the formalization of the item (ii), on the same day.

(iv) The distributions mentioned in the precedent items (i), (ii) and (iii) will be paid no earlier than the Final CADE Receipt Day and no later than two business days prior to the Closing Date.

Section 4.2     Deliveries at Closing .
(a)      Documents to be delivered by Sellers .    At the Closing Date, the following executed documents shall be delivered by Sellers to Purchaser :

(i) an amendment to the Articles of Association of the COMPANY, duly executed by the Sellers, whereby all of the HVS Quotas are sold, assigned and transferred by HVS to Purchaser , free and clear of all liens, claims, security interests, pledges, charges, options, restrictions and encumbrances of whatever nature and all of the MERITOR BRAZIL Quotas are sold, assigned and transferred by MERITOR BRAZIL in the quantity and as they shall be received from MASTER in consideration for the capital reduction referenced in Recital C hereof;

(ii) the Lease Agreement duly signed by MERITOR BRAZIL ;



(iii) any other instruments and documents necessary to validly and effectively transfer to Purchaser good title to the Quotas and consummate the transactions contemplated hereunder.

(iv) letters of resignation of the current members of the Consultative Board of the COMPANY who have been appointed by Sellers pursuant to the terms of the Joint Venture Agreement executed with the Purchaser ;

(b) Documents to be delivered by Purchaser .    At the Closing Date, the following events shall be carried out by Purchaser and the following documents shall be executed by Purchaser and delivered to Sellers :
(i) the wire transfer for payment of the amount referred to in Section 2.2 (a) shall have been effected by Purchaser to HVS , to the account indicated in Section 2.3;

(ii) the wire transfer for payment of the amount referred to in Section 2.2 (b) shall have been effected by Purchaser to MERITOR BRAZIL , to the account indicated in Section 2.3;

(iii) Purchaser shall execute and deliver to Sellers the amendment to the Articles of Association of the COMPANY mentioned in item (a)(i) above, whereby all of the Quotas are sold, assigned and transferred to Purchaser by Sellers ;

(iv) Purchaser shall have caused the COMPANY to execute and deliver to MERITOR BRAZIL the Lease Agreement mentioned in item (a)(ii) above;

(v) Purchaser shall execute and deliver to Sellers any other instruments and documents necessary to validly and effectively transfer good title to the Quotas and consummate the transactions contemplated hereunder.


ARTICLE V

Section 5.1     No Liability and Indemnification by Sellers . As set forth in the Recitals, the COMPANY is the result of a successful joint venture consummated many years ago among MASTER , HVS , and the Purchaser . Through its direct and indirect ownership (through MASTER ) of a majority of the COMPANY’s quotas, Purchaser has maintained effective corporate control and administration of the COMPANY and has complete knowledge of the COMPANY’s affairs. As such, no further representations and warranties are made by Sellers with respect to the COMPANY related to the sale of Quotas contemplated herein other than those described in Article III hereunder. Additionally, no liabilities and indemnification obligations of any nature are assumed by Sellers hereunder as to the Purchaser and/or the COMPANY (and any of its officers, directors, board members, shareholders, representatives and employees), in connection with their past, present and future activities and businesses, as well as with respect to any third parties, irrespective of the period of time in which any such liabilities or obligations may have arisen.




ARTICLE VI

Section 6.1     Termination of JVA and Quotaholders Agreement . HVS , MASTER and the Purchaser hereby expressly agree that the Joint Venture Agreement and the Quotaholders Agreement executed on August 15 th . 2002, which regulate the relationship of such Parties as quotaholders of the COMPANY (hereinafter referred to respectively as the “JVA” and “QA”) shall be deemed terminated upon and as of the Closing. Upon the termination of the JVA and the QA their terms will be superseded by this Agreement and its terms. Notwithstanding the preceding sentence and as an exception, the JVA provisions 12.1 and 12.2 reproduced as Sections 6.2 and 6.2.1 below, shall remain valid and in force for the respective periods established in each of such Sections.


Section 6.2     Protection of Information. The Parties shall, for a minimum of five (5) years after the termination of the JVA, keep confidential all proprietary business and technical information furnished to either of them or to a related company of either of them or to the COMPANY by the other Party , or a related company of the other Party. Neither Party shall, except with the written consent of the other Parties , use, communicate or allow to be communicated through the COMPANY or otherwise any such information to anyone except to the COMPANY and its subcontractors and only to such extent as may be necessary for the proper conduction of the business of the COMPANY . In order to be protectable information it must be disclosed in writing or promptly confirmed in writing and marked with an appropriate restrictive legend (“Confidential Information”).


Section 6.2.1. The foregoing restrictions shall not apply to information to the extent that it:

(a) Is now in or later enters the public domain through no fault of the receiving Party ;

(b) Was already in the possession of the receiving Party at the time of receipt;

(c) Is received from a third party having obligations of confidentiality to the disclosing Party ; or

(d) Was independently developed by the receiving Party .





Section 6.2.2. Injunctive Relief and Indemnification: Each of the Parties understands and acknowledges that any disclosure or misappropriation of any of the Confidential Information in violation of this Agreement may cause the disclosing party irreparable harm, the amount of which may be difficult to ascertain and, therefore, agrees that the disclosing party shall have the right to apply to a court of competent jurisdiction seeking an order restraining any such threatened or further disclosure or misappropriation and for such other relief as the disclosing party shall deem appropriate, such right of the disclosing party to be in addition to the remedies otherwise available to the disclosing party under the law, including but not limited to losses and damages, and without prejudice to the arbitration procedure herein established.

Section 6.3.     Intellectual Property/License.


(a) The Parties understand and agree that after the Closing Date, Purchaser and its affiliates shall have on a royalty free basis a) the exclusive right to make, use, or sell products utilizing or derived from the Suspensys IP in South America and b) the non-exclusive right to make, use, or sell products utilizing or derived from the Suspensys IP in the rest of the world except in North America, India (except as set forth in (d) below) and Australia. During five years after the Closing, the Purchaser agrees that it shall not and shall not allow others to make, use, or sell products utilizing or derived from the Suspensys IP in North America, India (except as set forth in (d) below) or Australia, without prior written approval from HVS , and shall notify HVS if they become aware of any such actions. After the five-year period the Purchaser and its affiliates will be allowed to freely make, use, or sell products utilizing or derived from the Suspensys IP in North America, India and Australia.


(b) The Parties understand and agree that after the Closing Date, HVS and its affiliates shall have on a royalty free basis a) the exclusive right to make, use, or sell products utilizing or derived from the Suspensys IP in North America, India, and Australia and b) the non-exclusive right to make, use, or sell products utilizing or derived from the Suspensys IP in the rest of the world except in South America. During five years after the Closing HVS specifically agrees that it shall not and shall not allow others to make, use, or sell products utilizing or derived from the Suspensys IP in South America, without prior written approval from Purchaser , and shall notify Purchaser and the COMPANY if HVS becomes aware of any such actions. After the five-year period the HVS and its affiliates will be allowed to freely make, use, or sell products utilizing or derived from the Suspensys IP in South America.


(c) If HVS identifies an opportunity to utilize the Purchaser contributed or COMPANY developed IP (“Non- HVS Based IP”) under the terms of Section 6.3(b), HVS may request from COMPANY access to the Non- HVS Based IP for a specified purpose (including country or region of production or sales, and the identification of specific products to be offered).  Upon receipt of such request, COMPANY agrees to meet with HVS and will discuss in good faith whether to grant such a request.  If COMPANY agrees to grant the request, COMPANY


agrees to provide access to the information required to enable HVS to fulfill the purpose of the request.  The Parties agree to execute any and all documents and agreements required by applicable law to ensure the use of Suspensys IP by HVS as contemplated herein above.


(d) The COMPANY or the Purchaser will discuss in good faith a business relationship (such as technical cooperation, alliance or joint venture) with Automotive Axles Limited, in Mysore, Karnataka, India (“AAL”). If the COMPANY and/or the Purchaser reach an agreement comprehending a business relationship with AAL, the Purchaser and its affiliates will be allowed to freely make, use, or sell products utilizing or derived from the Suspensys IP in India. If the COMPANY and/or Purchaser do not reach an agreement with AAL, the COMPANY will pay a mutually agreed upon commission to HVS on any product made or sold in India markets during the five-year period mentioned in item (a) above.
 

Section 6.4.     Non competition. The Sellers undertake not to directly, compete with the COMPANY and the Purchaser in South America for a period of five (5) years after the Closing Date, with the exception of: (i) sales by Sellers to the aftermarket (OES and independent aftermarket); and (ii) manufacture and/or sales by Sellers of hubs and drums supplied as part of a non-trailer axle assembly and/or distributed in the aftermarket. For purposes hereof, ‘compete’ means to manufacture or sell, in South America, any products manufactured or sold by the COMPANY on or before the Closing Date. In addition, solely for the purposes of this Section 6.4, the term “ Sellers ” shall include Meritor, Inc. and any entity now or hereafter, directly or indirectly controlled by Meritor, Inc.


Section 6.4.1. Notwithstanding anything in this Agreement to the contrary, during the five-year non-competition period set forth in Section 6.4 above:

(a) The Sellers shall be able to acquire or form a joint venture with a party having an interest in competing products in South America, provided that the Seller entity in question must divest such interest in competing products within eighteen (18) months thereafter. The COMPANY will be given the right of first refusal to acquire the interest in competing products in South America. Nothing in this Section 6.4.1. will prevent the Sellers from making an acquisition or forming a joint venture which includes competing products outside South America; and


(b)     The Sellers shall be able to make institutional investments in public companies which have interests in competing products in South America, provided the investment is financial in nature and not strategic (i.e., where no minority shareholder rights exist and the investing party can not exert any management control). Any such investment shall not be deemed a breach of the provisions hereof;







ARTICLE VII

Section 7.1     Other Agreements . MERITOR BRAZIL and the Purchaser , which terms shall include, for purposes of this Section 7.1, all present and future affiliates of either Party who may hereafter own any of the Quotas in the COMPANY or MASTER currently held by such Party , as the sole owners of all the quotas representing the total corporate capital of MASTER , hereby agree and commit to approve the distribution of dividends representing 100% of MASTER’s profits for the years of 2012, 2013 and 2014. The relevant payment of such dividends shall occur in April of each subsequent year. This resolution shall be ratified and implemented by MERITOR BRAZIL and the Purchaser through a proper resolution of quotaholders of MASTER to be held before the Closing Date, and properly registered before the competent Board of Trade. For purposes of this Section 7.1 it is agreed that (i) the applicable dividends to be distributed for the year 2013 shall be increased by the dividend amount distributed as part of the Purchase Price as per Section 4.1.1(e)(iii) times 2.04082, and (ii) the term dividends include interest on equity.


Section 7.2     Costs and Expenses . All legal, attorney’s fees and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses, except that the fees to be paid to CADE by virtue of the notification filing shall be borne by the Purchaser .


Section 7.3     Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) if personally delivered, on the date of actual receipt by the notified Party (ies), or (ii) four days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, or (iii) two days after mailing if sent by a recognized overnight courier (evidence of receipt required); or (iv) on the day of transmission by fax, receipt of transmission required, at the following addresses and/or numbers (or at such other address and/or numbers as shall be given in writing by any Party to the others):


(a) If to MERITOR HEAVY VEHICLE SYSTEMS, LLC

Att. Vice President and Treasurer
2135 West Maple Road
Troy, Michigan 48084 U.S.A.
Fax number: +1 248 435 1393

(b)    If to MERITOR DO BRASIL SISTEMAS AUTOMOTIVOS LTDA.



Att. Vice President, Commercial Truck & Aftermarket, South America
Rua Nathanael Tito Salmon, 409
CEP 06016-075
Osasco, São Paulo
Brazil
Fax number: + 55 11 3684-6579


(c)    If to RANDON S.A. IMPLEMENTOS E PARTICIPAÇÕES

At. Erino Tonon
Av. Abramo Randon, 770
Caxias do Sul, RS, Brazil
Fax number: +55 54 3239 2566

(d)    If to MASTER SISTEMAS AUTOMOTIVOS LTDA.

At. Alexandre Dorival Gazzi
Rua Atílio Andreazza, 3520
Caxias do Sul, RS, Brazil
Fax number: +55 54 3239 2566

(e)    If to SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
 
At. Alexandre Dorival Gazzi
Av. Abramo Randon, 1262
Caxias do Sul, RS, Brazil
Fax number: +55 54 3239 2566


Section 7.4     Successors and Assigns . This Agreement shall be binding and for the benefit of the Parties and their respective successors and permitted assigns, provided however that any assignments of this Agreement or any rights or obligations hereunder shall require prior written consent of the other Parties .


Section 7.5     Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the Federative Republic of Brazil.


Section 7.6     Further Assurances . Each Party shall cooperate and take such action as may be reasonably requested by another Party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. In addition, each Party shall use its timely best efforts to complete, or to assist any other Party to complete, any action required in order to satisfy any of the conditions of Closing set forth herein.




Section 7.7     Entire Agreement . This Agreement sets forth all of the premises, covenants, agreements, conditions and undertakings between the Parties hereto with respect to the subject matter hereof, and shall supersede all prior agreements and understandings, oral or written with respect thereto, except as set forth in Section 6.1. No provision of this Agreement shall be changed, revoked or waived except by an instrument in writing duly signed by all Parties or by duly authorized representatives thereof.

Section 7.8     Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, the provision shall apply with whatever deletion or modification is necessary so that the provision is legal, valid and enforceable and gives effect to the commercial intention and purposes of the Parties . The other provisions shall not be harmed as a consequence thereof.
Section 7.9     Interpretations and Reasonableness . This Agreement has been reviewed, negotiated and accepted by all Parties and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all Parties hereto. Each of the Parties confirms to have received independent legal advice related to all matters herein and agrees that the provisions of this Agreement are fair and reasonable.


Section 7.10     Irrevocability . This Agreement is executed by the Parties on an irrevocable and irreversible basis, and the Parties hereby waive any and all right to regret having entered into this Agreement.
    

Section 7.11     Language . This Agreement is executed both in English and Portuguese languages. Should there be any discrepancy between the two languages, the Portuguese version shall prevail. Notwithstanding, the Parties also agree that the English version of this Agreement shall be a relevant element of interpretation to ascertain the actual meaning and spirit desired by the Parties upon the execution of this Agreement.


Section 7.12     Specific Performance . Each Party shall have the right to demand the specific performance of any obligation undertaken by the other Party in this Agreement, including, but without any limitation, the obligation set forth in Section 7.1 hereof, according with the provisions of the Brazilian Code of Civil Procedure, in particular those set forth in Sections 461, 632 et seq . In this sense, the Parties acknowledge and agree that the payment of losses and damages shall not constitute an adequate compensation for the violation of any obligation assumed by any of the Parties herein and that the specific performance of the obligations is a necessary legal remedy in addition to the payment of losses and damages.




Section 7.13     Capital Market Release . The Purchaser and Meritor, Inc. (as HVS and MERITOR BRAZIL’s parent company) agree to issue press releases with respect to the execution and delivery of this Agreement and the transactions contemplated by this Agreement, which press releases will be substantially in the form of the drafts previously approved by both such Parties on the date of this Agreement, such approval not to be unreasonably withheld; provided , however , that such Parties may make any such announcements or statements which they have been advised by counsel may be required by applicable law, rule or regulation (including stock exchange regulations) or where such consultation is impracticable under the circumstances. In any event, any public announcement subject to this Agreement which refers to the Purchase Price of, or consideration for, the Quotas being purchased hereunder, must mention that the aggregate purchase price of the transaction is US$195,000,000.00.

ARTICLE VIII

Section 8.1     Dispute Resolution . The Parties shall make their best efforts in order to settle any disputes arising out of the execution, performance or interpretation of this Agreement by means of bona fide negotiations. If, within thirty (30) days of the receipt by any Party of a notice of dispute from any other Parties (the “Notice of Dispute”), the Parties do not mutually agree on a solution, then the dispute shall be settled by final and binding arbitration, as provided below.
Section 8.1.1. Arbitration . The arbitration shall be conducted in accordance with the rules of the CCBC, in force at the date of the request for arbitration. The court of arbitration will be composed by three arbitrators, of which one will be appointed by the requesting Party (ies) within 20 days of the request for arbitration, one by the requested Party (ies) within 20 days of the request for arbitration, and the third, who shall chair the arbitral tribunal, will be chosen by the arbitrators appointed by the two Parties , within 20 days as of the appointment of the later-appointed arbitrator, or in case the arbitrators are incapable to appoint the third arbitrator, by the president of CCBC. Any arbitrator not timely appointed shall be appointed by the CCBC. The seat of the arbitration will be the city of Sao Paulo, State of Sao Paulo, Brazil. The official language of the arbitration will be English. The award will be pronounced in the Portuguese language and the arbitrators shall not decide based on the equity principle. The arbitration award will be final and binding on the Parties and their successors, and may be executed in any court having jurisdiction thereof. The costs of the arbitration, including attorney’s fees, shall be borne by the losing Party (ies), except if the Parties agree or the arbitrators decide differently. In case that the arbitration decision is partially favorable to any or all of the Parties involved in the arbitration, the arbitrators shall allocate the arbitration costs between the losing Parties . The Parties waive any right of appeal. Notwithstanding the provisions above, the Parties elect the Courts of the city of São Paulo, State of São Paulo, as the court with exclusive jurisdiction to obtain provisional reliefs, including preliminary injunctions and interim measures, to protect rights prior to the confirmation of the arbitral tribunal, as well as in other situations authorized by Law No. 9,307/96. Even in cases in which a provisional relief has been requested or obtained, the merit of the conflict shall always be decided by the arbitrators. The Parties undertake not to disclose (and not to allow the disclosure of) any information related to such arbitration (including information regarding its existence), except if ( i ) the disclosure of such information is required by law or regulation; ( ii ) the


disclosure of such information is requested by a governmental authority or by order of a court with competent jurisdiction; or ( iii ) such information are made available to the general public by any means other than by disclosure by the Parties or their respective affiliates. It is agreed that each Party may disclose such information to its affiliates and representatives, and may discuss such information with other parties and its representatives, limiting the access to such information to the respective representatives that have the need to examine them in good faith, and that have been informed by the respective Party of the confidential nature of such information.







IN WITNESS WHEREOF, the Parties hereto execute this Agreement in five (5) identical counterparts, along with the undersigned two (2) witnesses.


MERITOR HEAVY VEHICLE
SYSTEMS, LLC
By: /s/ Kevin Nowlan
Title: Vice President and CFO


MERITOR DO BRASIL SISTEMAS AUTOMOTIVOS LTDA.
By: /s/ Silvio Nogueira de Barros
Title: Director

By: /s/ Adalberto Vanderlei Momi
Title: Director


RANDON S.A. IMPLEMENTOS E PARTICIPAÇÕES
By: /s/ David Abramo Randon
Title: President
 
By: /s/ Erino Tonon
Title: Vice President





MASTER SISTEMAS AUTOMOTIVOS LTDA.
By: /s/ Alexandre Dorival Gazzi
Title: CEO

By: /s/ Sérgio Luiz Onzi
Title: Director


SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
By: /s/ Alexandre Dorival Gazzi
Title: CEO

By: /s/ Everton Marcelo Kuver
Title: Commercial Director

Witnesses:

1. /s/ Carl Douglas Anderson II
Name: Carl Douglas Anderson II
Passport No.- 457347616

2.
Name: /s/ Geraldo Santa Catarina
IdentityCard(RG):1009723501- SSP/RS
CPF/MF:


[signature Page of the Quota Purchase and Sale Agreement entered into April 29 th , 2013]







































EXHIBIT I

FORM OF LEASE AGREEMENT
by and between


SUSPENSYS SISTEMAS
AUTOMOTIVOS LTDA.
and
MERITOR DO BRASIL SISTEMAS AUTOMOTIVOS LTDA.



Exhibit 12


Meritor, Inc.
Computation of Ratio of Earnings to Fixed Charges
Six Months Ended March 31, 2013
(Amounts in millions, except the ratio)


 
Earnings Available for Fixed Charges (A):
 
 
 
 
 
 
 
 
 
Pre-tax loss from continuing operations
 
$
(3
)
 
 
 
 
 
 
Less:
 
 
 
 
Equity in earnings of affiliates, net of dividends
 
 
(12
)
 
 
 
 
(9
)
 
Add: fixed charges included in earnings:
 
 
 
 
Interest expense
 
 
43

 
Interest element of rentals
 
 
2

 
Total
 
 
45

 
 
 
 
 
 
Total earnings available for fixed charges:
 
$
36

 
 
 
 
 
 
Fixed Charges (B):
 
 
 
 
Fixed charges included in earnings
 
$
45

 
Capitalized interest
 
 
—

 
Total fixed charges
 
$
45

 
 
 
 
 
 
Ratio of Earnings to Fixed Charges (C)
 
 
0.80

 

(A) “Earnings” are defined as pre-tax income from continuing operations, adjusted for undistributed earnings of less than majority owned subsidiaries and fixed charges excluding capitalized interest.

( B) “Fixed charges” are defined as interest on borrowings (whether expensed or capitalized), the portion of rental expense applicable to interest, and amortization of debt issuance costs.

(C) For fiscal year 2013, the Company would need to generate additional pretax earnings of $9 million to achieve coverage of 1:1.




Exhibit 23


CONSENT OF EXPERT

We consent to the references to our firm and to our reports with respect to estimation of the liability for pending and reasonably estimable unasserted future asbestos-related claims, which are included in Note 20 of the Notes to Consolidated Financial Statements in the Quarterly Report on Form 10-Q of Meritor, Inc. (“Meritor”) for the fiscal quarter ended March 31, 2013 and to the incorporation by reference of such reference into the following Registration Statements of Meritor:
Form
Registrations No.
Purpose
S-3
333-179405
Registration of common stock, preferred stock, warrants and guarantees of debt securities
S-8
333-171713
Amended 2010 Long-Term Incentive Plan
S-8
333-164333
2010 Long-Term Incentive Plan
S-3
333-163233
Registration of common stock, preferred stock, warrants and guarantees of debt securities
S-8
333-141186
2007 Long-Term Incentive Plan
S-3
333-143615
Registration of convertible notes, guarantees and common stock
S-3
333-134409
Registration of convertible notes, guarantees and common stock
S-8
333-107913
Meritor, Inc. Savings Plan
S-8
333-123103
Meritor, Inc. Hourly Employees Savings Plan
S-3
333-58760
Registration of debt securities
S-8
333-49610
1997 Long-Term Incentives Plan
S-3
333-43118
Meritor, Inc. 1988 Stock Benefit Plan
S-3
333-43116
Meritor, Inc. 1998 Stock Benefit Plan
S-3
333-43112
Meritor, Inc. Employee Stock Benefit Plan
S-8
333-42012
Employee Stock Benefit Plan, 1988 Stock Benefit Plan and 1998 Employee Stock Benefit Plan

 
BATES WHITE LLC
 
 
By:
/s/ Charles E. Bates
 
 
 
Charles E. Bates, Ph.D.
 
 
 
Chairman
Date: May 1, 2013



Exhibit 31-a
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, Charles G. McClure, Jr., certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Meritor, Inc. for the quarterly period ended March 31, 2013;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: M ay 3, 2013
 
/s/ Charles G. McClure, Jr.
 
Charles G. McClure, Jr., Chairman of the Board,
 
Chief Executive Officer and President




Exhibit 31-b
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, Kevin A. Nowlan, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Meritor, Inc. for the quarterly period ended March 31, 2013;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 3, 2013
 
/s/ Kevin A. Nowlan
 
Kevin A. Nowlan
 
Senior Vice President and Chief Financial Officer





Exhibit 32-a
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE
13a-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
     As required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, I, Charles G. McClure, Jr., hereby certify that:
1.
The Quarterly Report of Meritor, Inc. on Form 10-Q for the quarterly period ended March 31, 2013 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
2.
The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of Meritor, Inc.

/s/ Charles G. McClure, Jr.
Charles G. McClure, Jr.
Chairman of the Board, Chief
Executive Officer and President

Date: May 3, 2 013




Exhibit 32-b
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
     As required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, I, Kevin A. Nowlan, hereby certify that:
1.
The Quarterly Report of Meritor, Inc. on Form 10-Q for the quarterly period ended March 31, 2013 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
2.
The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of Meritor, Inc.

 
/s/ Kevin A. Nowlan
 
Kevin A. Nowlan
 
Senior Vice President and Chief
 
Financial Officer

Date: M ay 3, 2013